If the correlation between two stocks is -1,the returns:
A)generally move in the same direction.
B)are unrelated to one another as it is

Question

If the correlation between two stocks is -1,the returns:
A)generally move in the same direction.
B)are unrelated to one another as it is < 0.
C)move perfectly opposite one another.
D)have standard deviations of equal size but opposite signs.
E)None of the above.

Quizplus · Accepted Answer

When the correlation coefficient between two stocks is -1, it indicates a perfect negative correlation between the two stocks. It means that the stocks move in opposite directions. Therefore, Option C is correct. Option A is incorrect as they move in opposite directions. Option B is incorrect as the correlation between two stocks being < 0 does not necessarily mean that they are unrelated. Option D is incorrect as standard deviation is not related to correlation coefficient.

If the Correlation Between Two Stocks Is -1,the Returns