INV 2-3c Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =0.02+0.80RM+eHD R-squared =0.6 RML =-0.03+1.50RM+eML R-squared =0.4 σM =0.20 where M is S&P/TSX Comp Index and RX is the excess return of stock X. c. What is the covariance and the correlation coefficient between HD

INV 2-3c Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =0.02+0.80RM+eHD R-squared =0.6 RML =-0.03+1.50RM+eML R-squared =0.4 σM =0.20 where M is S&P/TSX Comp Index and RX is the excess return of stock X. c. What is the covariance and the correlation coefficient between HD

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter7: Distance And Approximation

Section7.3: Least Squares Approximation

Problem 33EQ

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Question

INV 2-3c

Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results:

R_HD =0.02+0.80R_M+e_HD

R-squared =0.6

R_ML =-0.03+1.50R_M+e_ML

R-squared =0.4

σ_M =0.20

where M is S&P/TSX Comp Index and R_X is the excess return of stock X.

c. What is the covariance and the correlation coefficient between HD and ML?

Definition Definition Relationship between two independent variables. A correlation tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.

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