If the covariance between the returns of two assets is equal to zero, then the correlation coefficient must also be zero.

Question

Quizplus · Accepted Answer

This statement is true. The correlation coefficient measures the strength and direction of the linear relationship between two variables. If the covariance between the returns of two assets is zero, it means there is no linear relationship between them, so the correlation coefficient must also be zero. However, it is important to note that two variables can have a nonlinear relationship even if their covariance is zero, in which case the correlation coefficient may not be equal to zero.

If the Covariance Between the Returns of Two Assets Is