Regression Analysis and Correlation Coefficient | CFA® Level 1 Exam Preparation

Regression Analysis and Correlation Coefficient

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Question

The results of the regressions using 200 observation on a variable Y against X are as follows:

Coefficient Standard error -

intercept 3.62.1

slope-8.11.3

R square = 49%

The correlation coefficient between X and Y is ________.

Answers

Explanations

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A. B. C. D.

B

In a univariate regression, the correlation coefficient between the dependent and the independent variables equals the square root of R-square. However, you should also be careful about the sign, which is not given by the R-square. Rather, you have to look at the sign of the slope coefficient. In this case, the slope coefficient is negative, implying that the dependent and the independent variables are negatively correlated and the correlation coefficient equals -sqrt(0.49) = -

0.7.

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