A security has a zero covariance with the market. This means that:
A)the return on the security is always equal to that of the market.
B)the return on the security moves in the same direction as the market return.
C)the security is a risk-free security.
D)there is no identifiable relationship between the return on the security and that of the market.
E)the return on the security must vary more than that of the market.

Question

Quizplus · Accepted Answer

Zero covariance between a security and the market means that there is no identifiable relationship between the return on the security and that of the market. It doesn't mean that the return will always be equal or move in the same direction as the market return, and it doesn't mean that the security is risk-free. It also doesn't necessarily mean that the return on the security will vary more than that of the market.

A Security Has a Zero Covariance with the Market