FRM 2026 Part I Quantitative Analysis Correlation Analysis Free Quiz 2

Practice FRM 2026 Part I Quantitative Analysis MCQs from Correlation Analysis. Get instant results with Explanation.

General10 MCQs

1. How do outliers affect correlation?

A. Pearson correlation is sensitive to outliersB. Pearson correlation is not affected by outliersC. Spearman correlation is more sensitive to outliers than PearsonD. Outliers do not affect correlation measures

2. What is the Fisher transformation used for?

A. Fisher transformation is used to test the meanB. Fisher transformation is used to test the varianceC. Fisher transformation is used to transform skewnessD. Fisher transformation is used to normalize the correlation coefficient

3. What is a limitation of the correlation coefficient?

A. Correlation captures all types of relationshipsB. Correlation only captures linear relationshipsC. Correlation is not limited to linear relationshipsD. Correlation always captures non-linear relationships

4. What do rank correlation coefficients measure?

A. Rank correlations measure linear relationships onlyB. Rank correlations are always less than Pearson rC. Rank correlations measure monotonic relationshipsD. Rank correlations are not used in practice

5. How does correlation affect portfolio diversification?

A. Lower correlation between assets reduces portfolio riskB. Higher correlation between assets reduces portfolio riskC. Correlation does not affect portfolio riskD. Correlation is not used in portfolio theory

General10 MCQs

6. What is a key feature of correlation in financial markets?

A. Correlation is constant over timeB. Correlation is always higher during bull marketsC. Correlation does not change over timeD. Correlation can vary over time and often increases during crises

7. What is correlation breakdown?

A. Correlation breakdown means correlations decrease during crisesB. Correlation breakdown refers to the increase in correlations during crisesC. Correlation breakdown is not a concern for risk managersD. Correlation breakdown only affects equity markets

8. What assumption does the multivariate normal distribution make about correlations?

A. Multivariate normal assumes time-varying correlationsB. Multivariate normal assumes zero correlationsC. Multivariate normal assumes constant correlationsD. Multivariate normal does not use correlations

9. What are copulas used for?

A. Copulas model dependence structure independently of marginal distributionsB. Copulas are used only for normal distributionsC. Copulas assume independence between variablesD. Copulas are not used in finance

10. What is a key advantage of Spearman correlation?

A. Spearman correlation is based on actual valuesB. Spearman correlation is less robust than PearsonC. Spearman correlation assumes a linear relationshipD. Spearman correlation is robust to outliers and non-linearity

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