The Covariance Between the Returns of Stock a and Stock

question 6

Multiple Choice

The covariance between the returns of stock A and stock B is -125. The standard deviation of the rates of return is 20 for stock A and 10 for stock B. The correlation coefficient of the rates of return between A and B is closest to ________.

• A) -0.625
• B) -0.375
• C) 0.375
• D) 0.625

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Definitions:

Prove Claims

The process of demonstrating the truth or validity of statements or assertions through evidence or argument.

Possible Doubt

A situation or condition where uncertainty or skepticism exists regarding a fact, claim, or outcome.

Francis Bacon

An English philosopher, statesman, scientist, and author who is known for developing the scientific method and contributing to the early development of science.

The Structure of Scientific Revolutions

A book by Thomas S. Kuhn that introduced the concept of paradigm shifts in the scientific community, explaining how scientific progress is not linear but consists of periodic, revolutionary changes.