Regression

[darshang3]

Consider 3 random variables X,Y,Z Suppose corr(x,y) =0.4 and corr(z,y)=0.3 which of the following statements is true?

a) corr(x,z) cannot be negative.
b) corr(x,z) has to be larger than 0.3
c) corr(x,z) cannot be negative
d) none of the above.

can u throw some light on this question.

thanks and do reply soon.

 

[hsuwang]

did you realize choices a and c are identical?

 

[David Harper CFA FRM]

none of the above (d) b/c correlation does not follow transitive property...but this question is not relevant to FRM (doesn't employ anything learned in 2009 FRM). Recommend ignore. David