Modern portfolio investment theory advocates that the optimal strategy for an investor is to...

Modern portfolio investment theory advocates that the
optimal strategy for an investor is to purchase stocks in companies that have a
low correlation between them. Mr. Smith is interested in purchasing stocks in
two different companies. Over a 24 month period the closing monthly prices
showed a correlation of r = 0.22.

(a). State H_{o} and H_{a}.

(b). Using a 5% significant level, would Mr. Smith
conclude that the two stocks have a correlation significantly different than
zero?