The Covariance Between the Returns on Two Stocks Equals the Correlation

question 41

True/False

The covariance between the returns on two stocks equals the correlation coefficient multiplied by the standard deviations of the two stocks.

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Definitions:

Unlevered Firms

Businesses that function without incorporating debt or borrowed funds into their financing strategies.

Financial Risk

The possibility of losing money on investments or business operations due to financial market volatility, interest rate changes, or poor financial management.

Financial Policy

Financial policy refers to the strategies that a company employs to manage its finances, including decisions on investments, capital structure, dividends, and working capital management.

Accumulated Tax Losses

Accumulated tax losses refer to net losses that a business can carry forward to future tax years, to offset taxable income and reduce tax liabilities.