Assume the correlation coefficient between CSCO and the market is 0.40. What percentage of CSCO’s total risk is idiosyncratic (ie nonsystematic) (round your answer to nearest $)? a) 40% b) 60% c) 16% d) 84% e) none of the above.
Answer is e. You need to know the standard deviations of CSCO and Market.
Answe is d, because the coefficient of determination tells you how much is explained by the regression, the rest which is 84% is due to something else.
so what is the correct answer? I am not sure i understand how it will be d? Isn’t the question about correlation coefficient and not coefficient of determination?
In a simple regression R^2 can be approximated to Rho^2, so R^2 =16% which means that the idiosyncratic risk is 84%