Can corr(A,C) be 0.1 given the other two
Question
Suppose has correlation with and correlation with . Could the correlation between and be as low as ?
Short answer
No. The correlation matrix must be positive semi-definite, which forces . With the determinant is negative.
Adapted from Joshi, Denson & Downes, Quant Job Interview Questions and Answers, Q3.26, p.83; question and answer rewritten by SelfMadeQuant.com.
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Open the worked solutionLessons behind this question
- Positive (Semi-)Definite Matrices: Equivalent Characterisations
- Covariance and Correlation
- Symmetric Matrices: Real Eigenvalues and Orthogonal Eigenvectors
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