If the correlation between two shares 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 shares 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 the above.

Quizplus · Accepted Answer

A correlation of -1 indicates a perfect negative correlation which means that the returns move in opposite directions. Therefore, the correct choice is B, "move perfectly opposite one another".

If the Correlation Between Two Shares Is −1, the Returns