1. How is correlation measured?

2. What is the importance of correlation in investment theory?

3. In Excel use a function = CORREL(highlight the first array of data: Market Return, second array of data: Stock A return).

Year Market Return,% Stock A return, %

2010 -6 -1

2011 1 0

2012 5 3

2013 -3 2

2014 0 5

2015 10 9

Find the correlation coefficient. Explain what that number means regarding stock A and market rate of return.