Answer: 0.8899

The correlation coefficient is calculated using the formula: \[\rho_{X,Z} = \frac{\text{Covariance}(X,Z)}{\sigma_X \cdot \sigma_Z}\] Given: - Standard deviation of X = $0.1225^{1/2} = 0.35$ - Standard deviation of Z = $0.3721^{1/2} = 0.61$ - Covariance(X,Z) = 0.19 Calculation: \[\rho_{X,Z} = \frac{0.19}{0.35 \times 0.61} = \frac{0.19}{0.2135} = 0.8899\] **Key Points:** - The correlation coefficient measures the linear relationship between two variables - It ranges from -1 to +1 - A value of 0.8899 indicates a strong positive correlation between Assets X and Z - Note that correlation coefficient does not consider the weights of the assets

Author: Tanishq Prabhu