Two assets with a correlation coefficient of -1
A) Will both have increasing returns at the same time
B) Will both have decreasing returns at the same time
C) Will have increasing returns for one when there are decreasing returns for the other
D) Will have decreasing returns in an economic boom
E) Will have increasing returns in an economic recession

Question

Quizplus · Accepted Answer

Assets with a correlation coefficient of -1 have a perfectly negative correlation, meaning that as one asset's returns increase, the other asset's returns decrease. Therefore, they will have increasing returns for one when there are decreasing returns for the other. This is because they have an inverse relationship, so when one asset is doing well, the other is doing poorly.

Two Assets with a Correlation Coefficient of -1