The Covariance Between the Returns on Two Assets Is Negative

question 8

Multiple Choice

The covariance between the returns on two assets is negative. This occurs when ________.

• A) the variance of one asset has a negative linear relationship with the variance of the other asset
• B) the standard deviation of one asset has a positive linear relationship with the standard deviation of the other asset
• C) on average, the return on one asset is below its expected value and the return on the other asset is above its expected value
• D) on average, the return on one asset is below its expected value and the return on the other asset is below its expected value

---

Definitions:

Intellectual Stimulation

The process of encouraging creativity, innovation, and critical thinking by challenging existing assumptions and encouraging exploration of new ideas.

Innovative and Creative

The ability to come up with new ideas, approaches, or solutions that are novel and effective.

Ethics Competency

The ability to understand, evaluate, and apply ethical standards and practices in decision-making processes.

Absolute Scale

A measurement system that has a fixed starting point or zero value, facilitating the comparison of absolute quantities.