If the Coefficient of Correlation Between Two Projects Is 0

question 24

Multiple Choice

If the coefficient of correlation between two projects is 0, it would indicate that

• A) One project is cyclical and the other is somewhat less so
• B) Both projects react in a similar manner to a change in interest rates
• C) The factors that impact one project's success have no impact on the other project's success
• D) The projects are not well diversified
• E) The revenue from one project will equally offset the losses in the other

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Definitions:

Riskless Profits

Profits made from trading or investing that are deemed to have no risk; often considered unrealistic in practical financial markets.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Expected Rate

The anticipated return on an investment over a certain period.

Beta

A measure of a stock's volatility in relation to the overall market, where a beta greater than 1 indicates greater volatility than the market.