Which of the following is correct of how the returns on assets move together?
A) Positive and negative deviations between assets at similar times give a negative covariance.
B) Positive and negative deviations between assets at dissimilar times give a negative covariance.
C) Positive and negative deviations between assets give a zero covariance.
D) Positive and negative deviations between assets at dissimilar times give a positive covariance.

Question

Quizplus · Accepted Answer

Covariance measures the extent to which the returns on two assets move together. Positive and negative deviations between assets at dissimilar times give a negative covariance, which means that when one asset is performing well, the other is not and vice versa. This is because dissimilar times refer to different market conditions, affecting asset returns differently. Therefore, option B is the correct answer.

Which of the Following Is Correct of How the Returns