MCQ - Correlation | Quantitative Aptitude for CA Foundation PDF Download

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CPT Section D, Quantitative Aptitude, Chapter 12 
CA. Dharmendra Gupta 
Page 2


CPT Section D, Quantitative Aptitude, Chapter 12 
CA. Dharmendra Gupta 
MCQ’s 
Page 3


CPT Section D, Quantitative Aptitude, Chapter 12 
CA. Dharmendra Gupta 
MCQ’s 
   (a) coefficient of correlation 
 (b) coefficient of regression 
   (c) both 
    (d) none of these 
Answer: a 
Page 4


CPT Section D, Quantitative Aptitude, Chapter 12 
CA. Dharmendra Gupta 
MCQ’s 
   (a) coefficient of correlation 
 (b) coefficient of regression 
   (c) both 
    (d) none of these 
Answer: a 
 (a) –1 and +1 
 (b) 0 and +1 
 (c) –1 and 0 
 (d) none of these 
Answer: a 
Page 5


CPT Section D, Quantitative Aptitude, Chapter 12 
CA. Dharmendra Gupta 
MCQ’s 
   (a) coefficient of correlation 
 (b) coefficient of regression 
   (c) both 
    (d) none of these 
Answer: a 
 (a) –1 and +1 
 (b) 0 and +1 
 (c) –1 and 0 
 (d) none of these 
Answer: a 
(a) choice of origin and not of choice of scale 
(b) choice of scale and not of choice of origin 
(c) both choice of origin and choice of scale 
(d) none of these 
Answer:c 
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FAQs on MCQ - Correlation - Quantitative Aptitude for CA Foundation

1. What is the significance of correlation in the field of finance?
Ans. Correlation is a statistical measure that indicates the strength and direction of the relationship between two variables. In the field of finance, correlation is important as it helps in understanding the relationship between different assets or securities. By analyzing the correlation between assets, investors can diversify their portfolios and reduce the overall risk.
2. How is correlation calculated and interpreted?
Ans. Correlation is calculated using a formula called the correlation coefficient, which ranges from -1 to +1. A positive correlation coefficient indicates a positive relationship, meaning that as one variable increases, the other also increases. On the other hand, a negative correlation coefficient indicates a negative relationship, meaning that as one variable increases, the other decreases. The magnitude of the correlation coefficient indicates the strength of the relationship, with values closer to -1 or +1 indicating a stronger correlation.
3. Can correlation be used to predict future returns of investments?
Ans. Correlation measures the relationship between two variables, but it does not imply causation. Therefore, correlation alone cannot be used to predict future returns of investments. While it can provide insights into the historical relationship between assets, other factors such as economic conditions, market trends, and individual stock performance also need to be considered when making investment decisions.
4. How does correlation differ from causation?
Ans. Correlation and causation are often misunderstood concepts. Correlation refers to the statistical relationship between two variables, while causation implies a cause-and-effect relationship. Just because two variables are correlated does not mean that one variable causes the other to change. It is important to consider other factors and conduct further analysis to establish causation.
5. What are the limitations of using correlation in financial analysis?
Ans. While correlation is a useful tool in financial analysis, it has certain limitations. Firstly, correlation assumes a linear relationship between variables, which may not always be the case in real-world scenarios. Additionally, correlation does not account for other factors that may influence the relationship between variables. It is important to consider these limitations and use correlation in conjunction with other analysis techniques for a comprehensive financial analysis.
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