Which of the following statements is false?
A) The covariance and correlation allow us to measure the co-movement of returns.
B) Correlation is the expected product of the deviations of two returns.
C) Because the prices of the stocks do not move identically, some of the risk is averaged out in a portfolio.
D) The amount of risk that is eliminated in a portfolio depends on the degree to which the stocks face common risks and their prices move together.

Question

Quizplus · Accepted Answer

Correlation is not the expected product of the deviations of two returns. Rather, it is a measure of the strength and direction of the linear relationship between two variables. The covariance is the expected product of the deviations of two returns.

Which of the Following Statements Is False