Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Deep dive into the quiz with AI chat providers.
We prepare a focused prompt with your quiz and certificate details so each AI can offer a more tailored, in-depth explanation.
An investor is analyzing the data of two assets X and Y for a period of 7 years. He applied all three statistical models to measure the correlation coefficient. The results were as follows:
Pearson correlation coefficient = -0.8501
Spearman correlation coefficient = -0.9
Kendall's τ = -0.4
He again analyzed the same data but changed two values of asset X without affecting its rating. What would be the impact of this change on the results?
Other
Community
NNikitesh
A
The Spearman results would change but the results of Pearson and Kendall approaches would remain unchanged
B
The Pearson and the Kendall results would change but the Spearman results would remain unchanged
C
The Kendall results would change but the results of the Spearman and Pearson approaches would remain unchanged
D
The Pearson results would change but the results of the Spearman and the Kendall approaches would remain unchanged
Explanation:
Explanation:
Pearson correlation coefficient measures linear correlation between actual numerical values. Changing the values of asset X (even if the rating/order remains the same) will affect the Pearson correlation because it depends on the actual numerical magnitudes.
Spearman correlation coefficient is based on the ranks (order) of the data rather than the actual values. Since the rating/order of asset X values remains unchanged, the Spearman correlation will not change.
Kendall's τ (tau) is also a rank-based correlation measure that assesses the strength of the relationship between two variables based on the concordance of pairs. Since the order/ranking of the data remains the same, Kendall's τ will also remain unchanged.
Therefore, only the Pearson correlation coefficient would change in this scenario.
Comments
Loading comments...