Assignment 2: Correlation Analysis
For the period 1995 through 2008, obtain data on the average annual returns for U.S. stocks (represented by the S&P 500 Index) and long-term U.S. Treasury bonds. You can search this data from the Internet.
• Create a scatter plot of the average returns for U.S. stocks (represented by the S&P 500 Index) and long-term U.S. Treasury bonds.
• Compute the Pearson product-moment correlation coefficient (sample correlation coefficient) between these sets of returns.
o Interpret the Pearson product-moment correlation coefficient.
• Test the hypothesis that the null hypothesis is that rho (the population correlation coefficient) equals zero.
o What does the test statistic equal?
o Is the null hypothesis rejected?
Submit your answers in a two- to three-page Microsoft Word document and the scatter plot in a Microsoft Excel sheet.
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