Consider the following returns: Year End Lowes Realized Return Home Depot Realiz
ID: 2801746 • Letter: C
Question
Consider the following returns:
Year End
Lowes Realized Return
Home Depot Realized Return
IBM
Realized Return
2000
20.1%
-14.6%
0.2%
2001
72.7%
4.3%
-3.2%
2002
-25.7%
-58.1%
-27.0%
2003
56.9%
71.1%
27.9%
2004
6.7%
17.3%
-5.1%
2005
17.9%
0.9%
-11.3%
Required: Calculate the correlation between Home Depot's and IBM's returns.
Year End
Lowes Realized Return
Home Depot Realized Return
IBM
Realized Return
2000
20.1%
-14.6%
0.2%
2001
72.7%
4.3%
-3.2%
2002
-25.7%
-58.1%
-27.0%
2003
56.9%
71.1%
27.9%
2004
6.7%
17.3%
-5.1%
2005
17.9%
0.9%
-11.3%
Explanation / Answer
Correlation: Home Depot (x) IBM (y) x-mean y-mean (x-mean)(y-mean) (x-mean)^2 (y-mean)^2 -14.6 0.2 -18.08333333 3.28333333 -59.37361105 327.0069444 10.78028 4.3 -3.2 0.816666667 -0.11666667 -0.095277781 0.666944445 0.013611 -58.1 -27 -61.58333333 -23.91666667 1472.868056 3792.506944 572.0069 71.1 27.9 67.61666667 30.98333333 2094.989722 4572.013611 959.9669 17.3 -5.1 13.81666667 -2.01666667 -27.86361116 190.9002778 4.066944 0.9 -11.3 -2.583333333 -8.21666667 21.22638889 6.673611109 67.51361 20.9 -18.5 17.41666667 -15.41666667 -268.5069445 303.3402778 237.6736 3.483333333 -3.083333333 -44.75115742 50.55671296 39.61227 SDx [50.55671296/6]^(1/2) 2.902777778 Sdy [39.61227/6]^(1/2) 2.569444492 Covariancce -7.458526237 -7.458526237 Correlation [-7.458526237/(2.902777778*2.569444492)] -0.999999982 -1
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