A negative covariance between two securities implies that an increase in returns on one of the assets is associated with _________________
A)An unrelated change in the returns of the other asset
B)No change in the returns of the other asset
C)An increase in returns in the other asset
D)A decrease in returns of the other asset

Question

Quizplus · Accepted Answer

A negative covariance implies that when the return on one asset increases, the return on the other asset decreases. Therefore, a decrease in returns of the other asset is associated with an increase in returns on one of the assets.

A Negative Covariance Between Two Securities Implies That an Increase