Explanation:
The following table illustrates the calculations used to determine the sum of squared ranking deviations:
| Year | X | Y | X Rank | Y Rank | ||
|---|---|---|---|---|---|---|
| 2013 | -20.0% | 40.0% | 1 | 5 | -4 | 16 |
| 2012 | -10.0% | 20.0% | 2 | 4 | -2 | 4 |
| 2010 | 5.0% | -10.0% | 3 | 1 | 2 | 4 |
| 2014 | 30.0% | 15.0% | 4 | 3 | 1 | 1 |
| 2011 | 50.0% | -5.0% | 5 | 2 | 3 | 9 |
| Sum | 34 |
Thus, the Spearman rank correlation coefficient is -0.7:
Ultimate access to all questions.
A risk manager gathers five years of historical returns to calculate the Spearman rank correlation coefficient for stocks X and Y. The stock returns for X and Y from 2010 to 2014 are as follows:
| Year | X | Y |
|---|---|---|
| 2010 | 5.0% | -10.0% |
| 2011 | 50.0% | -5.0% |
| 2012 | -10.0% | 20.0% |
| 2013 | -20.0% | 40.0% |
| 2014 | 30.0% | 15.0% |
What is the Spearman rank correlation coefficient for the stock returns of X and Y?
A
-0.7
B
-0.3
C
0.3
D
0.7
