Based on the outcomes in the table below choose which of the statements is/are correct: I. The covariance of Security A and Security B is zero
II. The correlation coefficient between Security A and C is negative
III. The correlation coefficient between Security B and C is positive
A)I only
B)I and II only
C)II and III only
D)I, II and III

Question

Based on the outcomes in the table below choose which of the statements is/are correct:  I. The covariance of Security A and Security B is zero
II. The correlation coefficient between Security A and C is negative
III. The correlation coefficient between Security B and C is positive
A)I only 
B)I and II only 
C)II and III only 
D)I, II and III

Quizplus · Accepted Answer

I. The covariance of Security A and Security B is zero: This means that the two securities have no linear relationship, but it does not imply that they are unrelated by other means.
II. The correlation coefficient between Security A and C is negative: A negative correlation coefficient implies an inverse relationship between two securities, indicating that they move in opposite directions. Therefore, statement II is correct.
III. The correlation coefficient between Security B and C is positive: A positive correlation coefficient indicates that two securities move in the same direction. Therefore, statement III is incorrect. 
Therefore, the correct choice is B) I and II only.

Based on the Outcomes in the Table Below Choose Which