Which of the following statements about correlation is incorrect?
A) If two variables are statistically independent of each other, their correlation coefficient is zero.
B) Negatively correlated investments offer the best opportunities for diversification.
C) If two investments are perfectly correlated, their correlation coefficient is +1.
D) The risk of fire is positively correlated with the risk of traffic accidents.

Question

Quizplus · Accepted Answer

The incorrect statement is D because the correlation between the risk of fire and the risk of traffic accidents is not inherently positive. Correlation measures the strength and direction of a linear relationship between two variables. The statement about fire risk and traffic accidents does not necessarily imply a direct or positive correlation, as these are two distinct risks that may not directly influence each other.

Which of the Following Statements About Correlation Is Incorrect