You have plotted the data for two securities over time on the same graph,i.e.,the monthly return of each security for the last 5 years. If the pattern of the movements of each of the two securities rose and fell as the other did,these two securities would have:
A) no correlation at all.
B) a weak negative correlation.
C) a strong negative correlation.
D) a strong positive correlation.
E) one cannot get any idea of the correlation from a graph.

Question

Quizplus · Accepted Answer

If the pattern of the movements of each of the two securities rose and fell as the other did, it indicates a strong positive correlation between the two securities. This means that when one security moves up, the other security also moves up and vice versa. Therefore, option D is the correct choice. Option A is incorrect because if there were no correlation, then the movements of the securities would be random and not identical. Option B is incorrect because if there were a weak negative correlation, the movements of the two securities would be in opposite directions, not identical. Option C is incorrect because a strong negative correlation would mean that the securities' movements would be in opposite directions, not identical. Option E is incorrect because a graph can provide an idea of the correlation between two securities.

You Have Plotted the Data for Two Securities Over Time