You are interested in whether the returns on Asset A are negatively correlated w ith the returns on Asset B.

Consider the follow ing annual return data on the two assets:

Asset A Asset B Year 1 -20% 8%

Year 2 - 5 5 Year 3 18 - 1 Year 4 15 - 2 Year 5 4 3 Year 6 -1 2 2

a. Calculate and interpret the Spearman rank correlation coefficient rs.

b. Specify the competing hypotheses in order to determine whether the asset returns are negatively correlated.

c. At the 1 % significance level, specify the critical value.

d. What is the conclusion to the test? Are the returns negatively correlated?