Question 19 in Quant Round 1

[sridhar]

"What is the covariance and correlation between these two sets: {4,7,9,11} and {2,3,10,5}? The (population) standard deviation of set A is 2.6 and the (population) standard deviation of B is 3.1."

I noticed that you solve this from first principles. The first time, I tried this -- I simply took the suggested covariance value in the solutions and then did:

Covariance / sigma(a) * sigma (b) and compared this to the correlation answer provided. Very quickly I found that the best fit was choice C.

Anything wrong with such a vile tactice

 

[David Harper CFA FRM]

sridhar

No, it is clever but what if i had included another answer that scales the relationship? I did not think to do this, but there are an infinite number of alternatives that pass your test but are incorrect; e.g., multiply the correct by any scalar. But okay: well done. Round 2 will not be so easy ....

David