Understanding Stock Correlations

What is the main challenge when trying to identify related companies by looking at stock charts?

• It's difficult to tell relationships by visual inspection alone.

• The charts are not detailed enough.

• The charts are too colorful.

• The charts are too similar.

Why is it important to understand relationships between stocks in a portfolio?

• To maximize the number of stocks in the portfolio.

• To ensure all stocks have the same price.

• To ensure all stocks are from the same industry.

• To avoid all investments moving in the same direction.

What is the limitation of comparing stock prices directly?

• It is only applicable to tech stocks.

• It requires advanced software.

• It is dominated by scale differences.

• It is too time-consuming.

How do returns help in comparing stocks?

• They provide a common scale for comparison.

• They eliminate the need for charts.

• They increase the stock prices.

• They reduce the volatility of stocks.

What is the purpose of using z-scores in correlation calculation?

• To decrease the standard deviation.

• To increase the average return.

• To adjust for volatility and put data on a common scale.

• To make the data more complex.

What does a positive z-score indicate?

• The value is below average.

• The value is negative.

• The value is above average.

• The value is at the average.

What does a correlation of 0 indicate?

• Strong relationship between sequences.

• No relationship between sequences.

• Perfect opposition between sequences.

• Perfect agreement between sequences.

What does a correlation of 0.9 signify?

• A perfect relationship.

• No relationship.

• A very strong relationship.

• A very weak relationship.

What is the range of possible correlation values?

• -1 to 1

• -0.5 to 0.5

• 0 to 1

• 0 to 100

What additional information is needed beyond correlation to understand why two variables move together?

• More data points.

• A different question.

• A higher correlation value.

• A lower standard deviation.