Quotations of index numbers of security prices of a certain joint stock company are given below:
Debentures (Price): 97.8 99.2 98.8 98.3. 98.4 96.7 97.1
Share (Price):73.2 85.8 78.9 75.8 77.2 87.3 33.8.
Find the rank correlation between the two prices.
Answers
Given : Debentures (Price): 97.8 99.2 98.8 98.3. 98.4 96.7 97.1
Share (Price):73.2 85.8 78.9 75.8 77.2 87.3 33.8.
To Find : rank correlation between the two prices.
Solution:
rank correlation coefficient = 1 - 6 ∑ (di)² / (n(n² - 1))
Debentures 97.8 99.2 98.8 98.3. 98.4 96.7 97.1
Rank 5 1 2 4 3 7 6
Share 73.2 85.8 78.9 75.8 77.2 87.3 33.8
Rank 6 2 3 5 4 1 7
di -1 -1 -1 - 1 - 1 6 -1
di² 1 1 1 1 1 36 1
∑ (di)² = 42
n = 7
rank correlation coefficient = 1 - 6 *42 / (7(7² - 1))
= 1 - 36/48
= 12/48
= 1/4
= 0.25
rank correlation between the two prices. = 0.25
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