If the correlation between two stocks is -1,the returns:
A) generally move in the same direction.
B) move perfectly opposite one another.
C) are unrelated to one another as it is

Question

If the correlation between two stocks is -1,the returns:
A) generally move in the same direction.
B) move perfectly opposite one another.
C) are unrelated to one another as it is < 0.
D) have standard deviations of equal size but opposite signs.
E) None of these.

Quizplus · Accepted Answer

A correlation coefficient of -1 indicates a perfectly negative linear relationship between the two stocks. This means that they move in opposite directions, and their returns move perfectly opposite one another.

If the Correlation Between Two Stocks Is -1,the Returns