Which of the Following Statements About Correlation Is Correct

question 39

Multiple Choice

Which of the following statements about correlation is correct?

• A)If the returns from two stocks are perfectly positively correlated and the two stocks have equal variance, an equally weighted portfolio of the two stocks will have a variance that is less than that of the individual stocks.
• B)If a stock has a negative correlation with market, its systematic risk is more than the market risk.
• C)Stocks that have correlation coefficients equal to zero will have minimum diversification benefits.
• D)The weaker the positive correlation two stocks exhibit, the more risk can be reduced when they are combined in a portfolio.
• E)Risk is reduced when positively-related stocks are combined to form portfolios, especially when the correlation coefficients are equal to +1.

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Definitions:

Plantwide Overhead Rate

A single overhead absorption rate used throughout an entire plant or company to allocate indirect costs to cost objects.

Direct Labor Hours

The total time workers spend on creating a product or service, often used as an allocation base in cost accounting.

Overhead Assigned

The process of allocating indirect costs, such as utilities or rent, to specific cost objects like products or departments.

Allocation Base

A measure or statistic used to distribute costs among different departments or activities, typically related to cost accounting practices.