Morgan Stanley Interview Question: 3 random variables have equal... | Glassdoor

Interview Question

Quantitative Analyst Interview New York, NY

3 random variables have equal pairwise correlation, what

  are the possible value of correlation.
Answer

Interview Answer

6 Answers

11

(-1/2, 1)

xeesus on Aug 13, 2012
1

Construct the correlation matrix ((1,x,x),(1,x,1),(x,1,1)) = C. For any vector v, we need dot(v, dot(C,v)) >= 0. Choose v= (1,1,1) to get x >= -1/2. To get the upper bound of 1, compute det (C) to get 2x^3 -3x^2 +1 >= 0. We know x=-1/2 is a zero, and we have 2 more. We can easily check that 1 is a zero. Thus x in [-1/2, 1].

fermi on May 27, 2017
0

let x be the correlation

                         (1 x x)
—> the correlation matrix A = (x 1 x) should be positive semi-definite
                         (x x 1)

—> |x| == 0
—> -1/2 = why ?

because intuitively, if x1 and x2 are negatively correlated, x2 and x3 are negatively correlated, then my naivety tends to tell me that x1 and x3 move in the same direction, i.e. positively correlated. but it seems like negative values for x are also possible

Anonymous on Aug 30, 2016
0

let x be the correlation

                         (1 x x)
—> the correlation matrix A = (x 1 x) should be positive semi-definite
                         (x x 1)

—> |x| = 0
—> -1/2 why ?

because intuitively, if x1 and x2 are negatively correlated, x2 and x3 are negatively correlated, then my naivety tends to tell me that x1 and x3 move in the same direction, i.e. positively correlated. but it seems like negative values for x are also possible

Anonymous on Aug 30, 2016
1

0, 1.

Anonymous on Mar 4, 2011
1

from the requirement that the correlation matrix be positive semi-definite, we'd get correlation coefficient in [-1/2,1]

Anonymous on Aug 30, 2016

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