Explanation:
The following table illustrates the calculations used to determine the sum of squared ranking deviations:
| Year | X | Y | X Rank | Y Rank | ||
|---|---|---|---|---|---|---|
| 2024 | -11% | 8% | 1 | 5 | -4 | 16 |
| 2023 | -8% | 4% | 2 | 3 | -1 | 1 |
| 2021 | -3% | 6% | 3 | 4 | -1 | 1 |
| 2025 | 3% | 3% | 4 | 2 | 2 | 4 |
| 2022 | 12% | -3% | 5 | 1 | 4 | 16 |
| Sum = | 38 |
Thus, the Spearman rank correlation coefficient is :
(Book 2, Module 23.3, LO 23.f)
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Question 21
An investment manager at Java Investments collects five years of historical returns in order to calculate Spearman's rank correlation coefficient for the stock returns of stocks A and B. The stock returns for A and B from 2021 to 2025 are as follows:
| Year | A | B |
|---|---|---|
| 2021 | -3% | 6% |
| 2022 | 12% | -3% |
| 2023 | -8% | 4% |
| 2024 | -11% | 8% |
| 2025 | 3% | 3% |
What is Spearman's rank correlation coefficient for the stock returns of A and B?
A
.
B
.
C
.
D
.
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