Security A and Security B have a correlation coefficient of 0. If Security A's return is expected to increase by 10 percent, Security B's:
A) return should also increase by 10 percent.
B) return should decrease by 10 percent.
C) return should be zero.
D) expected return is impossible to determine from the above information.

Question

Quizplus · Accepted Answer

A correlation coefficient of 0 indicates no linear relationship between the returns of Security A and Security B, so changes in Security A's return do not provide any information about changes in Security B's return.

Security a and Security B Have a Correlation Coefficient of 0