Assessing Correlation in Investments
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Questions and Answers

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?

<p>Chi-square test (D)</p> Signup and view all the answers

What are the most common hypotheses concerning correlation?

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

Which symbol represents the population correlation coefficient?

<p>$\rho$ (C)</p> Signup and view all the answers

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

<p>Both one-sided and two-sided hypotheses (B)</p> Signup and view all the answers

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

<p>Chi-square test (C)</p> 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?

<p>Non-parametric test (B)</p> Signup and view all the answers

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

<p>Modeling or forecasting using regression models (B)</p> Signup and view all the answers

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

<p>rXY = s_XY / (sX * sY) (A)</p> 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?

<p>t = r * sqrt((n - 2) / (1 - r^2)) (C)</p> 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?

<p>The magnitude of r needed to reject the null hypothesis decreases as sample size n increases. (C)</p> 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?

<p>n - 2 (B)</p> 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?

<p>As the sample size increases, significance is more likely to be indicated. (D)</p> 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?

<p>±2.228 (B)</p> 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?

<p>1.645 (C)</p> 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?

<p>32 (C)</p> 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?

<p>0.35 (D)</p> Signup and view all the answers

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

<p>Pearson correlation (B)</p> Signup and view all the answers

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