Q:
A:
The covariance between Stock A and Stock Z is 10.32, while the correlation coefficient between the two stocks is 0.35. If the variance to Stock Z is 58, which of the following would best describe the total risk that's inherent in Stock A.
A) It can't be determined since erroneous data has been provided.
B) 3.87%
C) 3.87%
D) 0.51%
A) It can't be determined since erroneous data has been provided.
B) 3.87%
C) 3.87%
D) 0.51%
The correct answer is: A)
COV_{A,Z }= r_{A,Z}s_{A}s_{Z}Note: Since s can never be negative, COV_{A,Z} and r_{A,Z} must always have the same sign. (ie., if one is positive then the other must be positive as well).
Therefore, the data was erroneous.
COV_{A,Z }= r_{A,Z}s_{A}s_{Z}Note: Since s can never be negative, COV_{A,Z} and r_{A,Z} must always have the same sign. (ie., if one is positive then the other must be positive as well).
Therefore, the data was erroneous.
MORE FAQS

What is the difference between variance and covariance?

What is the difference between a copay and a deductible?

How do I calculate correlation between market indicators and specific stocks?

How does correlation affect the stock market?

How do you interpret the magnitude of the covariance between two variables?

How is covariance used in portfolio theory?

Which of the following statements is (are) true with respect to the coefficient of determination ...

How does covariance impact portfolio risk and return?

According to the CAPM, the expected return on a stock, that is part of a portfolio, will depend on all of the following except:

What does a negative correlation coefficient mean?

What is the correlation between American stock prices and the value of the U.S. dollar?

Can the correlation coefficient be used to measure dependence?

Does a negative correlation between two stocks mean anything?

How do I find positive correlation in the stock market?

Can a mean variance analysis be done for any investment?

How many attempts at each CFA exam is a candidate permitted?

Are hedge funds regulated by FINRA?

Do financial advisors need to pass the Series 7 exam?

Is a financial advisor required to have a degree?

Do financial advisors need to be approved by FINRA?
RELATED FAQS

What is the difference between variance and covariance?
Learn more about the differences between covariance and variance, and how these metrics can be of use to you in minimizing ... 
What is the difference between a copay and a deductible?
Learn how the correlation coefficient may be used to predict the relationship between the returns of two stocks, but also ... 
How do I calculate correlation between market indicators and specific stocks?
Discover how to calculate the correlation coefficient between market indicators and stock prices, a critical skill in technical ... 
How does correlation affect the stock market?
Learn about the role correlation plays in prudent stock market investing, and how the correlation coefficient is used to ... 
How do you interpret the magnitude of the covariance between two variables?
Learn more about covariance and how financial planners and economists use the concept. Explore an example of covariance in ... 
How is covariance used in portfolio theory?
Learn how covariance is used to reduce risk in modern portfolio theory, how covariance is calculated and how it is used to ...
RELATED TERMS

Correlation Coefficient
A measure that determines the degree to which two variable's ... 
Z
A Nasdaq stock symbol specifying that the stock is a miscellaneous ... 
Regulation Z
A specific Federal Reserve Board regulation that requires debt ... 
Erroneous Trade
A stock transaction that deviates so much from the current market ... 
Covariance
A measure of the degree to which returns on two risky assets ... 
Pearson Coefficient
A type of correlation coefficient that represents the relationship ...