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.

Question

Quizplus · Accepted Answer

A negative covariance indicates that when the return on one stock is above its average, the return on the other stock tends to be below its average, suggesting an inverse relationship in their movements.

A Negative Covariance Between the Returns of Stock a and Stock