Certified Government Financial Manager (CGFM) Practice Exam

A correlation coefficient of .85 typically indicates a strong positive relationship between two variables. In the context of forecasting, this suggests that there is a reliable correlation between the data sets being analyzed. A coefficient of .85 means that as one variable increases, the other also tends to increase, which can be critically useful in predicting future trends based on historical data.

This high level of correlation supports the notion that the two variables are not just associated by chance, enhancing the reliability of the forecasts derived from this relationship. Such strong correlations can be leveraged in various financial management and analysis scenarios, particularly when making predictions based on past performance or other trends.

In contrast, a weak correlation would be indicated by a coefficient closer to zero, while a perfect correlation would have a coefficient of 1. A correlation coefficient of zero signifies no relationship at all between the variables. Thus, the choice identifying the correlation coefficient of .85 as indicating a reliable correlation for forecasting aligns with the principles of statistical analysis in terms of understanding and utilizing relationships between data sets effectively.