If the Correlation Between Two Stocks Is +1, Then a Portfolio

question 34

Multiple Choice

If the correlation between two stocks is +1, then a portfolio combining these two stocks will have a variance that is:

• A)less than the weighted average of the two individual variances.
• B)greater than the weighted average of the two individual variances.
• C)equal to the weighted average of the two individual variances.
• D)less than or equal to average variance of the two weighted variances, depending on other information.
• E)None of the above.

Understand the assumptions underlying simple linear regression analysis, including normality, constant variance, and independence.

Acquire the ability to evaluate the regression assumptions using residual plots.

Understand the significance and application of t-table values in constructing confidence and prediction intervals.

Grasp the concept and application of preliminary sums of squares and cross-products in regression analysis.

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