Which of the following statements is FALSE?

a) Correlation is the expected product of the deviations of two returns.

b) The covariance and correlation allow us to measure the co-movement of returns.

c) The amount of risk that is eliminated in a portfolio depends on the degree to which the stocks

d) face common risks and their prices move together.

e) Because the prices of the stocks do not move identically, some of the risk is averaged out in a portfolio.

Question

Yellow

Business

23 April, 14:12

Which of the following statements is FALSE?

a) Correlation is the expected product of the deviations of two returns.

b) The covariance and correlation allow us to measure the co-movement of returns.

c) The amount of risk that is eliminated in a portfolio depends on the degree to which the stocks

d) face common risks and their prices move together.

e) Because the prices of the stocks do not move identically, some of the risk is averaged out in a portfolio.

+3

Answers (1)

Know the Answer?

Skyla · Answer 1

a) Correlation is the expected product of the deviations of two returns.

Explanation:

Correlation is represented using the symbol ρ

Well the term correlation is derived from co variance and standard deviation of two.

It is in the form of a divided by b

Where a = co variance of the returns.

And b = Product of the standard deviation of the two.

Thus, it is just not the product of deviations.

Therefore, the statement in question is false.