A correlation coefficient of 1 indicates a perfect positive correlation between the prices of two stocks, meaning the stocks always move in the same direction by the same amount. A coefficient of -1 indicates a perfect negative correlation, meaning that the stocks have historically always moved in the opposite direction.
Full Answer
Is the direction of price change equally likely?
Either direction of price change is equally likely. Both technical and fundamental analysts serve a useful function. Studies a firm's financial statements to determine pricing inefficiencies. Which group of investors is capable of earning consistent, superior profits if financial markets are strong-form efficient?
When does no price change occur on the day of dividend announcement?
If no price change occurs in a stock on the day that it announces its next dividend, it can be assumed that: the market was expecting this information. When investors are not capable of making superior investment decisions on a consistent basis based on past prices or public
What is the expected return of a stock paying $5 in dividends?
Value assets and liabilities without GAAP restrictions. A stock paying $5 in annual dividends sells now for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now?
How does the dividend discount model affect the value of stock?
The value of common stock will likely decrease if: The discount rate increases When valuing stock with the dividend discount model, the present value of future dividends will: Remain constant regardless of the time horizon selected.
What is correlation coefficient in stocks?
The correlation coefficient is basically a linear regression performed on each stock's returns against the other. If mapped graphically, a positive correlation would show an upward-sloping line. A negative correlation would show a downward-sloping line.
How do you find the correlation coefficient between two stocks?
To find the correlation between two stocks, you'll start by finding the average price for each one. Choose a time period, then add up each stock's daily price for that time period and divide by the number of days in the period. That's the average price. Next, you'll calculate a daily deviation for each stock.
What is correlation coefficient and how useful it is in investment decision?
The correlation coefficient helps an investor measure the strength of the relationship between two different variables — such as gold prices and mining stocks. You could use it to help understand a trend in some of your investments.
What is correlation coefficient in statistics?
The correlation coefficient is the specific measure that quantifies the strength of the linear relationship between two variables in a correlation analysis. The coefficient is what we symbolize with the r in a correlation report.
How do you find the correlation coefficient between two stocks in Excel?
Method A Directly use CORREL functionFor example, there are two lists of data, and now I will calculate the correlation coefficient between these two variables.Select a blank cell that you will put the calculation result, enter this formula =CORREL(A2:A7,B2:B7), and press Enter key to get the correlation coefficient.More items...•
Why correlation is used in research?
A correlational research design investigates relationships between variables without the researcher controlling or manipulating any of them. A correlation reflects the strength and/or direction of the relationship between two (or more) variables. The direction of a correlation can be either positive or negative.
What does a correlation of indicate?
A correlation coefficient, often expressed as r, indicates a measure of the direction and strength of a relationship between two variables. When the r value is closer to +1 or -1, it indicates that there is a stronger linear relationship between the two variables.
What is the correlation coefficient between the two securities?
It is measured by the standard deviation of two securities, namely, x and y. The coefficient of correlation between two securities is shown when it is +1.0, it means that there is perfect positive correlation and if it shows -1.0, it means that there is perfect negative correlation.
How is correlation calculated?
How To CalculateStep 1: Find the mean of x, and the mean of y.Step 2: Subtract the mean of x from every x value (call them "a"), and subtract the mean of y from every y value (call them "b")Step 3: Calculate: ab, a2 and b2 for every value.Step 4: Sum up ab, sum up a2 and sum up b.More items...