Question 3

Probability	Rate of Return on Security A	Rate of Return on Security B
0.1	30	25
0.2	22	18
0.2	15	17
0.3	6	8
0.05	5	7
0.15	10	6

The correlation coefficient, ,, measures the strength of association between two shares (in this case, shares A and B) and is given by:

,=

Where is the covariance of the expected returns between shares A and B and , are the respective standard deviations of the returns on shares A and B. The column headed probability shows the chance of the various expected returns on shares A and B.

Based on the above information in the table, calculate the correlation coefficient between shares A and B. Show all workings.