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Answer: Correlation and the regression slope are closely related.
**Correct Answer: C** **Explanation:** C is correct. Correlation and the slope of the regression are intimately related, as regression explains the sense in which correlation measures linear dependence. A is incorrect. Financial assets are highly dependent and exhibit both linear and nonlinear dependence. B is incorrect. Pearson's correlation only measures linear dependence. D is incorrect. The rank correlation is virtually identical to the Pearson's (also known as linear) correlation for normal random variables.
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A risk analyst is assessing the correlation between the returns of two financial assets. The analyst wants to determine if the two sets of returns are dependent. Which of the following is correct regarding correlation and dependence?
A
Returns on financial assets tend to be independent.
B
Pearson's correlation measures both linear and nonlinear dependence.
C
Correlation and the regression slope are closely related.
D
If the returns of the two assets are normally distributed, their rank correlation and Pearson's correlation would not be equal.
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