A Correlation Exists When

question 53

Multiple Choice

A correlation exists when

• A) two variables are related to each other.
• B) two variables have the same underlying cause.
• C) two variables are affected by a third variable.
• D) a cause-and-effect relationship exists between two variables.

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Definitions:

Stable Equilibrium

A state in which a system, once disturbed, returns to its original condition because the equilibrium is stable.

Expected and Required Returns

The returns that investors anticipate or demand from an investment considering its risk, often guiding investment decisions.

SML

Stands for Security Market Line; it represents the relationship between the expected return of an investment and its risk in the capital asset pricing model (CAPM).

Beta of the Portfolio

An assessment of a portfolio's volatility or inherent risk, relative to the overall market.