Financial Risk Manager Part 1

Explanation

All three statements A, B, and C are actually CORRECT statements about the correlation coefficient:

1. Statement A is correct: The correlation coefficient (typically Pearson's correlation coefficient) measures the strength and direction of the linear relationship between two random variables.

2. Statement B is correct: The correlation coefficient is a dimensionless quantity - it has no units. This is because it's calculated by dividing the covariance of two variables by the product of their standard deviations, which cancels out the units.

3. Statement C is correct: The correlation coefficient always ranges from -1 to +1, where:

   • +1 indicates a perfect positive linear relationship
   • -1 indicates a perfect negative linear relationship
   • 0 indicates no linear relationship

Since all three statements are correct, the INCORRECT statement is D. None of the above, because there IS an incorrect statement among the options - option D itself is incorrect.

Note: The text states "The correct answer is: D)" but this appears to be a contradiction in the source material. If D says "None of the above" and all A, B, C are correct, then D should be the correct answer for the question asking which is INCORRECT. However, the explanation in the text suggests that all statements about correlation coefficient properties are correct, making D the incorrect statement.