Question

Suppose X, Y and Z are uncorrelated random variables with means 1, 2 and 3 and standard deviations 2, 4 and 5 respectively. If U = Y – X and V = Z – Y. Compute the correlation coefficient between U and V and comment on your result.

Answer 1

The correlation coefficient between U and V is -0.5587 and it illustrates to at there's a negative relationship between U and V.

How to illustrate the information?

The data shows that:

E(x) = 1

E(y) = 2

E(z) = 3

Var(X) = 2² = 4

Var(Y) = 4² = 16

Var(Z) = 5² = 25.

Cov(U, V) = 16

Var(U) = Var(Z - Y)

= 25 - 0 + 16

= 41

The correlation coefficient will be:

= -16/✓(20 × 41)

= -0.5587

The correlation coefficient between U and V is -0.5587 and it illustrates to at there's a negative relationship between U and V.

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