Financial Risk Manager Part 1

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Explanation:

The correlation coefficient $\rho$ is defined as the covariance divided by the product of the standard deviations:

$\rho = \frac{Cov(X,Y)}{\sigma_X \sigma_Y}$

Given: $Cov(X,Y) = 0.092$ $Var(X) = 0.1232 \implies \sigma_X = \sqrt{0.1232} \approx 0.350998$ $Var(Y) = 0.1104 \implies \sigma_Y = \sqrt{0.1104} \approx 0.332265$

Calculating the correlation: $\rho = \frac{0.092}{0.350998 \times 0.332265} = \frac{0.092}{0.1166245} \approx 0.788856$

The closest answer is 0.7889.

Explanation:

The correlation coefficient $\rho$ is defined as the covariance divided by the product of the standard deviations:

$\rho = \frac{Cov(X,Y)}{\sigma_X \sigma_Y}$

Given: $Cov(X,Y) = 0.092$ $Var(X) = 0.1232 \implies \sigma_X = \sqrt{0.1232} \approx 0.350998$ $Var(Y) = 0.1104 \implies \sigma_Y = \sqrt{0.1104} \approx 0.332265$

Calculating the correlation: $\rho = \frac{0.092}{0.350998 \times 0.332265} = \frac{0.092}{0.1166245} \approx 0.788856$

The closest answer is 0.7889.

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Q.30 If the covariance between Canadian and American interest rates is 0.092, and the variances of interest rates in Canada and the U.S. are 12.32% and 11.04%, respectively, then which of the following is closest to the correlation between Canadian and American interest rates?

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Last updated: May 21, 2026 at 13:04

0.7889

9.7641

0.1478

1.2677