When you use @RISK’s correlation feature to generate correlated random numbers, how can you verify that they are correlated? Try the following. Use the RISKCORRMAT function to generate two normally...

When you use @RISK’s correlation feature to generate correlated random numbers, how can you verify that they are correlated? Try the following. Use the RISKCORRMAT function to generate two normally distributed random numbers, each with mean 100 and standard deviation 10, and with correlation 0.7. To run a simulation, you need an output variable, so sum these two numbers and designate the sum as an output variable. Now run @RISK with 500 iterations. Click on @RISK’s Excel Reports button and check the Simulation Data option to see the simulated data.


a.     Use Excel’s CORREL function to calculate the correlation between the two input variables. It should be close to 0.7. Then draw a scatterplot (XY chart) of these two input variables. The plot should indicate a definite positive relationship.


b.   Are the two input variables correlated with the output? Use Excel’s CORREL function to find out. Interpret your results intuitively.