A Negative Covariance Between the Returns of Stock a and Stock

question 85

Multiple Choice

A negative covariance between the returns of Stock A and Stock B indicates that

• A)market prices of Stock A and Stock B move in tandem when their returns are declining.
• B)the return on one stock will exceed that stock's average return when the second stock has a return that is less than its average.
• C)a portfolio investing equally in Stocks A and B will have a negative expected rate of return.
• D)both Stock A and Stock B have negative rates of return for the period.
• E)one stock has a negative rate of return while the other stock has a positive rate of return for the period.

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Definitions:

Cohesion

The attraction between molecules of the same substance, which helps to hold the substance together.

Solvency

The ability of an entity, whether an individual, company, or country, to meet its long-term financial commitments and debts.

Subatomic Particles

Particles that are smaller than atoms, including protons, neutrons, and electrons, which make up the atom's nucleus and electron cloud.

Electrons

Electrons are negatively charged subatomic particles that orbit the nucleus of an atom, playing a critical role in chemical reactions and electricity.