Question

The standard deviation of return on investment A is 24%, while the standard deviation of return on investment B is 19%. If the covariance of returns on A and B is 0.009, the correlation coefficient between the returns on A and B is __________.

Answer 1

The standard deviation of return on investment A is 24%, while the standard deviation of return on investment B is 19%. If the covariance of returns on A and B is 0.009, the correlation coefficient between the returns on A and B is 0.197368.

What is the correlation coefficient between the returns on A and B?

Generally, the equation for the Correlation coefficient is  mathematically given as

Correlation coefficient = Covariance of returns on investment A and B / (Standard deviation of return on investment A * Standard deviation of return on investment B).

Therefore

CC= 0.009 / (0.24 * 0.19)

CC= 0.197368

In conclusion, the Correlation coefficient between returns on investment A and B is

CC = 0.197368

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