Correlation between min and max of two uniforms
Question
Draw two independent values and call the smaller one and the larger one . For , compute , and then find the correlation coefficient of and .
Short answer
and . Given both draws are uniform on , and both must exceed . For the correlation, is the product of the two draws, so , giving , while each variance is .
Adapted from Zhou, A Practical Guide to Quantitative Finance Interviews, sec. 4.6 Order Statistics, 'Correlation of max and min', p.99; question and answer rewritten by SelfMadeQuant.com.
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Open the worked solutionLessons behind this question
- Order Statistics and Sample Quantiles
- Covariance and Correlation
- Continuous Random Variables and Probability Density Functions
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