The term Corr($\varepsilon$_R, $\varepsilon$_T) = 0 tells us that: A) the error terms of company R and T are 0. B) the unsystematic risk of companies R and T is unrelated or uncorrelated. C) the correlation between the returns of companies R and T is greater than zero. D) the systematic risk companies R and T is unrelated.

Question

Quizplus · Accepted Answer

The notation suggests a correlation coefficient between the error terms (or unsystematic risks) of two entities (in this case, companies R and T) equals zero, indicating that their unsystematic risks are uncorrelated or unrelated.

The Term Corr ε\varepsilonε R ε\varepsilonε T) = 0 Tells Us That: A) the Error Terms

The Term Corr $\varepsilon$ _R $\varepsilon$ _T) = 0 Tells Us That:
A) the Error Terms