When Testing to Determine If Correlation Is Significant, We Use $H _ { 0 } : \rho = 0$

question 11

Essay

When testing to determine if correlation is significant, we use the hypotheses $H _ { 0 } : \rho = 0$ $H _ { 1 } : \rho \neq 0$ What does the symbol $\rho$ represent? Explain the meaning of the null and altemative hypotheses.

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Definitions:

Expected Return

The weighted average of all possible returns, with weights equal to the probabilities of each outcome.

Equally-Weighted

An investment strategy where each security is assigned the same weight or importance in a portfolio, promoting diversification.

Risk-Free Asset

An investment with a certain return, usually with low returns, considered to have negligible risk, such as government bonds.

Expected Return

The anticipated value or profit gained from an investment over a specified period, considering all possible outcomes.