Let Xi and Yi be random variables with Var(Xi) = σx2 and Var(Yi) = σy2 for all i ∈ {1, . . . , n}. Assume that each pair (Xi, Yi) has correlation Corr(Xi, Yi) = ρ, but that (Xi,Yi) and (Xj,Yj) are independent for all i ̸= j. (a) What is Cov(Xi,Yi) in terms of σx, σy and ρ? (b) Show that Cov(Xi,Y ̄) = (ρσxσy)/n, where Y ̄ is the average of the Yi (c) Determine Cov(X ̄,Y ̄).

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Let Xi and Yi be random variables with Var(Xi) = σx2 and Var(Yi) = σy2 for all i ∈ {1, . . . , n}. Assume that each pair (Xi, Yi) has correlation Corr(Xi, Yi) = ρ, but that (Xi,Yi) and (Xj,Yj) are independent for all i ̸= j.

(a) What is Cov(Xi,Yi) in terms of σx, σy and ρ?

(b) Show that Cov(Xi,Y ̄) = (ρσxσy)/n, where Y ̄ is the average of the Yi

(c) Determine Cov(X ̄,Y ̄).

B2.  Consider the random variables Xi and Yi from question B1 again.

(a)  Show that the sample covariance is an unbiased estimator of Cov(X1,Y1).

Hint: consider the equality Xi − X ̄ = (Xi − μ) − (X ̄ − μ).

(b)  Can you conclude from the statement in part (a) that the sample correlation is an

unbiased estimator of Corr(X1, Y1)? Justify your answer.

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