Question 4 (10 marks)

Capsule Corp wants to see if their daily sales values affect their share price (with a one-week delay). In some chosen week, the daily sales revenues were Z23m, Z4m, Z18m, Z27m, and Z25m (in millions of Zeni Z, the local currency).

The daily share prices for Capsule Corp in the following week were Z57.3, Z50.0, Z49.81, Z53.7, and Z60 (again, Z denotes Zeni).

a) Calculate Kendalls Tau for this given data. [3 marks]

b) Calculate Spearmans Rho for this data. You may use the fact that 1 4 ( 3) 2 5 =1 = 2.5 [3 marks]

c) The Pearsons correlation coefficient for this data has been calculated to be = 0.783606. Give a brief explanation of the difference between what is measuring and the two results of your calculations in parts a) and b) are measuring. Note: you do NOT need to perform any calculations for this part. [2 marks]

d) The market is now in a slump. Capsule Corps main competitor, ShEnron, has recently filed for bankruptcy. Capsule Corp, fearing bankruptcy as well, wants to compare their daily share returns over the past year with those of ShEnron. In particular, Capsule Corp is interested in modelling the lower tail dependence between the two sets of daily share returns. Name 2 copulas that could be used for this analysis. Give a brief explanation of your answer. Note: you do NOT need to perform any calculations for this part.