Question 6.64

image 29. Mutual fund reports often give correlations to describe how the prices of different investments are related. You look at the correlations between three Fidelity funds and the Standard & Poor’s 500 Stock Index, which describes stocks of large U.S. companies. The three funds are Dividend Growth (stocks of large U.S. companies), Small Cap Stock (stocks of small U.S. companies), and Emerging Markets (stocks in developing countries). For a recent year, the three correlations are , , and .

  1. Which correlation goes with each fund? Explain your answer.
  2. The correlations of the three funds with the index are all positive. Does this tell you that stocks went up that year? Explain your answer.

29.

(a) Dividend Growth: 0.98; Small Cap Stock: 0.81; Emerging Markets: 0.35

(b) No, just that they moved in the same direction