Which of the following statements is false?
A) Stocks in the same industry can be expected to have a correlation coefficient of zero.
B) A correlation coefficient of zero indicates there is no relationship between the returns on the two assets.
C) The closer the absolute value of the correlation coefficient is to 1, the stronger the relationship between the returns on the two assets.
D) Generally, security returns display positive correlations with one another, but these correlations are less than one because most stocks tend to follow the movements of the overall market.

Question

Quizplus · Accepted Answer

A correlation coefficient of zero does not imply that stocks in the same industry will have no relationship. In fact, stocks in the same industry often move together due to industry-specific factors, implying a correlation greater than zero.

Which of the Following Statements Is False