Assessing Correlation in Investments

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Which statistical test is used to assess the strength of the linear relationship between two variables?

Parametric test (correct)
Chi-square test
Non-parametric test
T-test

What can we conclude if the relationship between two variables is found to not result from chance?

There is a non-linear relationship between the variables
There is no relationship between the variables
There is a weak linear relationship between the variables
There is a strong linear relationship between the variables (correct)

Which type of data cannot be tested using the methods discussed in the first lesson?

Discrete data
Ordinal data
Categorical data (correct)
Continuous data

What type of test can be performed to test the relationship between categorical or discrete data?

Chi-square test (D) Signup and view all the answers

What are the most common hypotheses concerning correlation?

The population correlation coefficient is equal to zero (C) Signup and view all the answers

Which symbol represents the population correlation coefficient?

$\rho$ (C) Signup and view all the answers

What type of hypotheses can be made concerning the population correlation coefficient?

Both one-sided and two-sided hypotheses (B) Signup and view all the answers

Which test statistic is used to test the independence of categorical or discrete data?

Chi-square test (C) Signup and view all the answers

Which type of test is used to evaluate the correlation between two variables when the assumptions of a parametric test are not met?

Non-parametric test (B) Signup and view all the answers

What can we use the information about the relationship between two variables for?

Modeling or forecasting using regression models (B) Signup and view all the answers

Which of the following is the correct formula for the sample correlation, rXY?

rXY = s_XY / (sX * sY) (A) Signup and view all the answers

Which of the following is the correct formula for the t-test statistic for testing the null hypothesis H0: ρ = 0?

t = r * sqrt((n - 2) / (1 - r^2)) (C) Signup and view all the answers

Which of the following is true about the t-test statistic for testing the null hypothesis H0: ρ = 0?

The magnitude of r needed to reject the null hypothesis decreases as sample size n increases. (C) Signup and view all the answers

What is the degrees of freedom for the t-test statistic used to test the null hypothesis H0: ρ = 0?

n - 2 (B) Signup and view all the answers

Which of the following is true about the significance of the t-test for a given sample correlation coefficient and sample size?

As the sample size increases, significance is more likely to be indicated. (D) Signup and view all the answers

What is the critical value of the t-statistic for a two-sided alternative hypothesis at the 0.05 level?

±2.228 (B) Signup and view all the answers

What is the critical value of the t-statistic for a one-sided alternative hypothesis at the 0.05 level?

1.645 (C) Signup and view all the answers

What is the sample size required for a sample correlation coefficient of r = 0.35 to yield a t-statistic just significant at the 0.05 level?

32 (C) Signup and view all the answers

What is the sample correlation coefficient required for a sample size of n = 12 to yield a t-statistic not different from zero at the 0.05 level?

0.35 (D) Signup and view all the answers

What is the name often used to refer to the parametric pairwise correlation coefficient?

Pearson correlation (B) Signup and view all the answers