Consider two European firms listed on Euronext:
$\bullet$ Company I: Its stock return shows a consistent positive correlation with the value of the euro.
The stock price of Company I (in euros) tends to go up when the euro appreciates relative to the U.S. dollar.
$\bullet$ Company II: Its stock return shows a consistent negative correlation with the value of the euro. The stock price of Company II (in euros) tends to go down when the euro appreciates relative to the U.S. dollar.
An American investor wishes to buy European stocks but is unsure about whether to invest in Company I or Company II. She is afraid of a depreciation of the euro relative to the U.S. dollar. Which of the two investments would offer some protection against a weakening U.S. dollar?

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The Answer of Consider two European firms listed on Euronext:
$\bullet$ Company I: Its stock return shows a consistent positive correlation with the value of the euro.
The stock price of Company I (in euros) tends to go up when the euro appreciates relative to the U.S. dollar.
$\bullet$ Company II: Its stock return shows a consistent negative correlation with the value of the euro. The stock price of Company II (in euros) tends to go down when the euro appreciates relative to the U.S. dollar.
An American investor wishes to buy European stocks but is unsure about whether to invest in Company I or Company II. She is afraid of a depreciation of the euro relative to the U.S. dollar. Which of the two investments would offer some protection against a weakening U.S. dollar?

Consider Two European Firms Listed on Euronext ∙\bullet∙ Company I: Its Stock Return Shows a Consistent Positive Correlation

Consider Two European Firms Listed on Euronext $\bullet$ Company I: Its Stock Return Shows a Consistent Positive Correlation