Sum and difference of perfectly correlated variables

Suppose XX and YY are perfectly correlated, ρ(X,Y)=1\rho(X,Y) = 1, with σY>σX>0\sigma_Y > \sigma_X > 0. What is the correlation ρ(X+Y, XY)\rho(X+Y,\ X-Y)?

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  1. ρ=1\rho=1 means Y=aX+bY=aX+b with a=σY/σX>1a=\sigma_Y/\sigma_X>1. Write X+YX+Y and XYX-Y in terms of XX.
  2. Two affine functions of the same variable have correlation ±1\pm1; the sign is sign(1a2)\operatorname{sign}(1-a^2). Or check Cov=σX2σY2\operatorname{Cov}=\sigma_X^2-\sigma_Y^2.

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Asked at: Citadel, Two Sigma

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