Answer to Question #104710 in Finance for Yogesh

Question

Find coefficient of correlation, if variance of X series=2.25, standard deviation of Y series=4and regression equation of X on Y is X+0.3Y=1.8

Answer 1

Sample regression coefficient x on y:

$\rho$_xy=r*$\sigma$_x/$\sigma$_y

r - correlation coefficient between variables X and Y;

σ_x, σ_y - standard deviation calculated for the variables x b y

ρxy - coefficient in the equation

σ_y =4

σx= 1.5, if we extract the square root from the variance, we get the standard deviation

Transform the equation:

x+0.3y=1.8

0.3y=1.8-x, ρxy=0.3

Substitute in the first formula:

0.3=r*1.5/4

0.3=r*0.375

r=0.8

on a Cheddock scale

0.7 < r < 0.9: high.