Following there are correlation values for Stock Price, Earnings Per Share(EPS)
ID: 3333748 • Letter: F
Question
Following there are correlation values for Stock Price, Earnings Per Share(EPS) and Price Earnings(P/E) ratio for sample of some companies.
Stock Price
Earnings Per Price (EPS)
Earnings Per Price (EPS)
0.915
Price/Earnings (PE)
0.363
-0.51
According the correlation coefficients values above, which statements are false or true?
Earnings Per Price (EPS) is the best predictor of stock price.
The strongest correlation is between Earnings Per Price (EPS) and Stock Price.
There is a weak negative association between P/E and EPS.
Earnings Per Price (EPS) is the best predictor of stock price.
The weakest correlation is between P/E and EPS.
Stock Price
Earnings Per Price (EPS)
Earnings Per Price (EPS)
0.915
Price/Earnings (PE)
0.363
-0.51
Explanation / Answer
As correlation between EPS and Stock Price is 0.915 so EPS will bettter predict Stock price than PE
so
Earnings Per Price (EPS) is the best predictor of stock price. Correct
so as shown in table Highest correlation is between EPS and Stock Price so
The strongest correlation is between Earnings Per Price (EPS) and Stock Price correct
as Correlation b/w EPS and PE is -0.51 so as we consider Corr >|0.5| as moderate good correlation so
There is a weak negative association between P/E and EPS. false
Since Weakest correlation is between PE and Stock Price so
The weakest correlation is between P/E and EPS. False