Questions: Determine the linear correlation coefficient between compensation and stock return. r= (Round to three decimal places as needed.)

Solution Steps

The covariance between compensation \( X \) and stock return \( Y \) is calculated as follows:

\[ \text{Cov}(X,Y) = 2500.0 \]

Next, we calculate the standard deviations of both variables:

\[ \sigma_X = 158.114 \] \[ \sigma_Y = 15.811 \]

The correlation coefficient \( r \) is computed using the formula:

\[ r = \frac{\text{Cov}(X,Y)}{\sigma_X \sigma_Y} \]

Substituting the values we have:

\[ r = \frac{2500.0}{158.114 \times 15.811} = 1.0 \]

Final Answer