Which of the Following Are Caveats of Correlation

question 56

Multiple Choice

Which of the following are caveats of correlation?

• A)Its use is limited to metric variables (interval or ratio scaled).
• B)It examines the relationship between only two variables.
• C)Do not assume cause and effect.
• D)It is limited to linear relationships.
• E)all of the above

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Definitions:

Certainty Equivalent Rate

The certain return providing the same utility as a risky portfolio.

Risk-Free Investment

An investment that is expected to return its original investment value without any loss.

Mean-Variance Criterion

The mean-variance criterion is a method for selecting investments that balance expected return against portfolio variance or risk.

Expected Return

The forecasted profit or loss from an investment over a specific period, often based on historical data or statistical models.