Which of the following statements is correct?
A) For a few firms in completely different industries, it is possible to have a correlation that approaches −2.0.
B) A correlation of −1.0 means that the two firms are uncorrelated or that they have no relationship.
C) Most common stocks have low correlation with each other since they operate in different industries.
D) None of these choices are correct.

Question

Quizplus · Accepted Answer

The correct answer is D because correlations range between -1.0 and +1.0, making a correlation of -2.0 impossible. A correlation of -1.0 indicates a perfect inverse relationship, not a lack of correlation. Lastly, common stocks can have varying degrees of correlation regardless of industry differences, making the generalization in option C inaccurate.

Which of the Following Statements Is Correct