[R] statistics/correlation question NOT R question
Horace Tso
Horace.Tso at pgn.com
Tue May 8 20:17:36 CEST 2007
Mark, I suppose you make the usual assumptions, ie. E[x]=0, E[x*epsilon]=0, the correlation is just simply,
corr(x,y) = beta * ( var(x) / var(y) )
And you could get var(y) from var(x) and var(epsilon).
HTH.
Horace
>>> "Leeds, Mark (IED)" <Mark.Leeds at morganstanley.com> 5/8/2007 10:25:11 AM >>>
This is not an R question but if anyone can help me, it's much
appreciated.
Suppose I have a series ( stationary ) y_t and a series x_t ( stationary
)and x_t has variance sigma^2_x and epsilon is normal
(0, sigma^2_epsilon )
and the two series have the relation
y_t = Beta*x_t + epsilon
My question is if there are particular values that sigma^2_x and
sigma^2_epsilon have to take in order for corr(x_t,y_t) to equal Beta ?
I attempted to figure this out using two different methods and in one
case I end up involving sigma^2_epsilon and in the other I don't
and I'm not sure if either method is correct. I think I need to use
results form the conditional bivariate normal but i'm really not sure.
Also, it's not a homework problem because I am too old to have homework.
Thanks for any insights/solutions.
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This is not an offer (or solicitation of an offer) to buy/se...{{dropped}}
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