If the distribution of returns on an asset has a variance of zero, then covariance of returns between that asset and the returns on any other asset must be equal to zero.

Question

Quizplus · Accepted Answer

If the distribution of returns on an asset has zero variance, it indicates that the asset has a constant return rate. In this case, the covariance between this asset and any other asset will be zero because there is no variability in its returns to be correlated with the returns of any other asset. Therefore, the statement is true.

If the Distribution of Returns on an Asset Has a Variance