Answer: 0.5477

The correlation coefficient is calculated using the formula: $$ \text{Corr}(R_A, R_B) = \frac{\text{Cov}(R_A, R_B)}{\sigma_A \sigma_B} $$ Where: - Covariance = 0.315 - Standard deviation of Portfolio A = √(0.525) = √(0.525) ≈ 0.7246 - Standard deviation of Portfolio B = √(0.63) = √(0.63) ≈ 0.7937 Calculation: $$ \text{Corr}(R_A, R_B) = \frac{0.315}{0.7246 \times 0.7937} = \frac{0.315}{0.575} ≈ 0.5477 $$ **Key points:** 1. Variance must be converted to standard deviation by taking the square root 2. Correlation coefficient ranges from -1 to +1 3. The covariance of 0.315 is positive, indicating positive correlation 4. The result of 0.5477 shows a moderate positive correlation between the two portfolios

Author: Nikitesh Somanthe