Financial Risk Manager Part 1
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Which one of these correlation coefficients shows the weakest linear relationship?
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Community
NNikitesh
A
-0.8
B
0.65
C
0.30
D
0.56
Explanation:
The correlation coefficient measures the strength and direction of a linear relationship between two variables. The value ranges from -1 to +1, where:
- -1: Perfect negative linear relationship
- 0: No linear relationship
- +1: Perfect positive linear relationship
The closer the absolute value is to 1, the stronger the linear relationship. The closer the absolute value is to 0, the weaker the linear relationship.
Comparing the given options:
- A. -0.8: Absolute value = 0.8 (strong negative relationship)
- B. 0.65: Absolute value = 0.65 (moderately strong positive relationship)
- C. 0.30: Absolute value = 0.30 (weak positive relationship)
- D. 0.56: Absolute value = 0.56 (moderate positive relationship)
Since 0.30 has the smallest absolute value among all options, it represents the weakest linear relationship.
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