## Regression

manish.g
Good Student
Posts: 10
Joined: Sun May 06, 2012 2:31 pm

### Regression

Hi,
Can you pls explain below solution

You regress the returns of a global industrial company's stock against the returns for the MSCI EAFE index and determine the following information:

Rstock = 0.04 + 1.2X + e ;
scompany stock =6.6%,
sTMSCI EAFE = 4.8%,
covariance of returns = 0.002765.
The coefficient of determination for the regression equation is closest to:

Choose one answer. a. 0.873
b. 1.200
c. 0.762
d. 0.040

.The correct answer is 0.762

suresh.wadhwani2009
Finance Junkie
Posts: 99
Joined: Sat Apr 07, 2012 10:24 am

### Re: Regression

Dear Manish,

Correlation = Covariance/Sigma(x)*Sigma(y)

So,

Correlation = 0.002765/0.066*0.048 = 0.8727

and we know that, Coeff of determination is square of correlation,

R^2=(0.8727)^2
R^2=0.762

Hope it helps

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

### Re: Regression

Perfect!

Return to “FRM Part I”

## Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.