Question

company x and company y stock analysis
during the past week, financial analysts have been closely monitoring the stock prices of company x and company y. there has been market speculation that company xs performance might be influencing company ys stock price. data was collected on the closing stock prices of both companies over five consecutive days to explore this possibility. the relationship between their stock prices is depicted in the scatter - plot below, where each point represents the closing price of company x (on the x - axis) and company y (on the y - axis) for the same day. the chart visually represents the correlation between the two companies stock performance.
relationship between company x and company y stock prices
based on the data, what can be inferred about the relationship between the stock prices of company x and company y?
there is a perfect negative correlation between the stock prices of company x and company y.
there is a perfect positive correlation, meaning the increase in company xs stock price is causing the increase in company ys stock price.
there is a perfect positive correlation, but this does not necessarily imply that company xs stock price is causing company ys stock price to increase.
there is no correlation between the stock prices of company x and company y.

Explanation:

A perfect positive correlation means that as one variable (Company X's stock price) increases, the other (Company Y's stock price) increases in a perfectly linear - fashion. However, correlation does not imply causation. Just because there is a perfect positive correlation does not mean that Company X's stock price is causing Company Y's stock price to increase. There could be other factors at play or a third - variable that is influencing both stock prices.

Answer:

There is a perfect positive correlation, but this does not necessarily imply that Company X's stock price is causing Company Y's stock price to increase.