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Basic Question 12 of 15
Which of the following statements most accurately describes a situation in which the regression coefficient between a security and the market index is 0.4?
B. For every percent move in the market, the security's return is expected to change by 0.4%
C. The relationship between the two securities is positive, however, the degree to which they move in the same direction is not perfect.
D. This certainly implies that portfolio has a high degree of unsystematic risk.
A. Movements in the market explain 40% of the variation in the security's return.
B. For every percent move in the market, the security's return is expected to change by 0.4%
C. The relationship between the two securities is positive, however, the degree to which they move in the same direction is not perfect.
D. This certainly implies that portfolio has a high degree of unsystematic risk.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan2 | Other choices are for correlation coefficient, not regression coefficient. |
| xiajessy | what is the difference of regression coefficient and correlation coefficient? under this situation in the question. |
| vi2009 | corr coefficient = measures how security & the market index moves ... base on the formula COV = p x Qsub security x Qsub market index regression coefficient is simply the slope of the regression model. |
| Narsi | Regression coefficient = Correlation coefficient x SD(y) / SD(x) |
| tedolini | regression coefficient = correlation coefficient x sd(y)/sd(x) |
| ericczhang | B is only really true of the regression equation is log-log... |
| davidt876 | @danlan2: option 'A' wouldn't apply for a correlation coefficient - but would apply for the correlation coefficient squared (coefficient of determination) |
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Learning Outcome Statements
describe a simple linear regression model, how the least squares criterion is used to estimate regression coefficients, and the interpretation of these coefficients
CFA® 2024 Level I Curriculum, Volume 1, Module 10.