Question: You are interested in whether the returns on Asset A are negatively correlated with the returns on Asset B. Consider the following annual return data

You are interested in whether the returns on Asset A are negatively correlated with the returns on Asset B. Consider the following annual return data on the two assets:

........................Asset A....................... Asset B

Year 1...................-20%...................................... 8%

Year 2 .......................-5.................................... 5

Year 3....................... 18.................................. -1

Year 4....................... 15.................................. -2

Year 5......................... 4.................................... 3

Year 6..................... -12.................................... 2

a. Calculate and interpret the Spearman rank correlation coefficient rs .

b. Specify the competing hypotheses to determine whether the Spearman rank correlation coefficient is less than zero.

c. At the 1% significance level, specify the critical value.

d. What is the conclusion to the test? Are the returns negatively correlated?

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