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Q.10 A retail investor has recently bought two stocks - UUK and LLY - which have a correlation of 0.72. The covariance between UUK and LLY is 0.032. Given that LLY's return has a standard deviation of 0.17, the variance of returns for UUK is closest to: | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

The correct answer is B.

Explanation: Correlation between UUK and LLY,

\text{Corr(UUK, LLY)} = \frac{\text{Cov(UUK, LLY)}}{(\sigma_{\text{UUK}} \times \sigma_{\text{LLY}})}

0.720 = \frac{0.032}{\sigma_X \times 0.17}

0.1224 \sigma_X = 0.032

\sigma_X = 0.26144

V(X) = 0.26144^2 = 0.06835

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Q.10 A retail investor has recently bought two stocks - UUK and LLY - which have a correlation of 0.72. The covariance between UUK and LLY is 0.032. Given that LLY's return has a standard deviation of 0.17, the variance of returns for UUK is closest to:

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