The term Corr($\varepsilon$ R, $\varepsilon$ T) = 0 tells us that:
A)all error terms of company R and T are 0.
B)the unsystematic risk of companies R and T is unrelated or uncorrelated.
C)the correlation between the returns of companies R and T is -1.
D)the systematic risk of companies R and T is unrelated.
E)None of the above.

Question

Quizplus · Accepted Answer

Corr(F1F1F1S1F1F1F10 R, F1F1F1S1F1F1F10 T) = 0 means that there is no relationship or correlation between the unsystematic risk of companies R and T. It does not mean that all error terms are 0, or that the correlation is -1, or that the systematic risk is unrelated. So, option B is the best choice as it correctly defines the meaning of the term Corr.

The Term Corr ε\varepsilonε R ε\varepsilonε T) = 0 Tells Us That: A)all Error Terms of Us

The Term Corr $\varepsilon$ R $\varepsilon$ T) = 0 Tells Us That:
A)all Error Terms of Us