If an investor observes a strong positive correlation between the stock prices of Company X and Company Y, which step should they take to determine if there is a causal relationship?

Correlation shows that the stock prices move together, but it does not prove that one company’s performance causes the other’s. To investigate possible causes, check whether they share relevant factors, such as operating in the same industry or responding to the same market conditions. Therefore, the best step is to investigate those shared influences.

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