The correlation measures the:
A) Rate of movements of the return of individual stocks
B) Direction of movement of the return of individual stocks
C) Direction of movement between the returns of two stocks
D) Stock market volatility

Question

Quizplus · Accepted Answer

Correlation measures the direction of movement between the returns of two stocks. It indicates the degree to which two stocks move in relation to each other. Option A is incorrect as it refers only to the rate of movement of individual stocks, while option B is incorrect as it refers only to the direction of movement of individual stocks. Option D is also incorrect as correlation is specific to the relationship between two stocks, and does not measure overall market volatility.

The Correlation Measures The