We Can Interpret a Correlation Coefficient in Terms of the "Percent

question 1

Multiple Choice

We can interpret a correlation coefficient in terms of the "percent of variance accounted for." Using this method, the correlation r = .60 accounts for what percent of variance?

• A) .06
• B) .36
• C) .40
• D) .60

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Definitions:

Active Portfolio

An investment portfolio that is frequently adjusted or traded by managers in an attempt to outperform the market.

Dominant Strategy

A strategy that always provides a better outcome for a player, no matter what the other players do.

Reward/Risk Ratio

A financial metric that compares the expected returns of an investment to the amount of risk undertaken to capture these returns.

Nonsystematic Variance

The portion of an asset's total variance that is attributable to factors unique to that specific asset, as opposed to broader market influences.