The correlation coefficient between the market return and a risk-free asset would
A) be +∞.
B) be -∞.
C) be +1.
D) be -1.
E) be Zero.

Question

Quizplus · Accepted Answer

The correlation coefficient measures the strength of the linear relationship between two variables, and it ranges between -1 (perfect negative correlation) and +1 (perfect positive correlation). A correlation coefficient of zero indicates no correlation or independence between the two variables. Therefore, the best choice is E, which is zero. The market return and a risk-free asset are typically not correlated, as they have different risk profiles and sources of return.

The Correlation Coefficient Between the Market Return and a Risk-Free