You plotted the monthly rate of return for two securities against time for the past 48 months.If the pattern of the movements of these two sets of returns rose and fell together the majority,but not all,of the time,then the securities have
A)no correlation at all.
B)a weak negative correlation.
C)a strong negative correlation.
D)a strong positive correlation.
E)a perfect positive correlation.

Question

Quizplus · Accepted Answer

If the two securities rose and fell together for the majority of the time, it suggests a strong positive correlation between them. A weak correlation or no correlation would mean that the securities move independently of each other, which is not the case here. A negative correlation would mean that the securities move in opposite directions, which is not what the question states. A perfect positive correlation would mean that the two securities always move together, which is not realistic over a long period of time. Therefore, the best choice is a strong positive correlation (Option D).

You Plotted the Monthly Rate of Return for Two Securities