Variable X and Variable Y Have a Correlation Coefficient of +.70

question 8

Multiple Choice

Variable X and variable Y have a correlation coefficient of +.70. How much of the variation of variable Y scores can be accounted for by variable X?

• A)14 percent
• B)30 percent
• C)49 percent
• D)70 percent

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Definitions:

Covariance of Returns

A measure used in finance to assess how two investments move in relation to each other over a period.

Correlation Coefficient

A statistical measure that calculates the strength and direction of the relationship between two variables or assets.

Diversification

A risk management technique that mixes a wide variety of investments within a portfolio to minimize the impact of any single asset's performance.

Negatively Correlated

Refers to two variables that move in opposite directions, meaning when one variable increases, the other decreases, and vice versa.