The Major Difference Between the Correlation Coefficient and the Covariance

question 40

Multiple Choice

The major difference between the correlation coefficient and the covariance is that the correlation coefficient:

• A) can be positive, negative, or zero, whereas the covariance is always positive.
• B) measures the relationship between securities, whereas the covariance measures the relationship between a security and the market.
• C) is a relative measure showing association between security returns, whereas the covariance is an absolute measure showing association between security returns.
• D) is a geometric measure, and the covariance is an arithmetic measure.

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