Any ideas on how to solve this? Got first part. A sample size of 24 was put together for estimation of correlation between an index and a portfolio. Covariance was estimated as 354, with the portfolio and index standard deviations being estimated as 35 and 22. What is the value of the correlation co-efficient, and is it significantly different from 0.5 at 5% alpha? A. 0.10, Yes B. 0.68, Yes C. 0.46, Yes D. 0.46, No
are you sure that the text says different from 0.5 and not 0? haven’t seen such a prob before - if you assume different from zero i would go with c, since 2.43 > 2.07
Yes. Text is correct.
then i admit: i have no clue…
So r =354/(35*22) = 0.46 I would then use the “Fisher z-transform” to do the hypothesis test, but afaik that’s not part of the CFA curriculum. Z = 1/2Log((1+r)/(1-r)) and then Z is normally distributed with mean 1/2*log(1+0.5)/(1-0.5) and std dev 1/sqrt(21)…
Is it C?
It’s D if you plug the numbers in. You get a Z-test statistic of -0.24.