If the correlation between two stocks is -1, the returns:
A) generally move in the same direction.
B) move perfectly opposite one another.
C) are unrelated to one another as it is

Question

If the correlation between two stocks is -1, the returns:
A) generally move in the same direction.
B) move perfectly opposite one another.
C) are unrelated to one another as it is <0.
D) have standard deviations of equal size but opposite signs.

Quizplus · Accepted Answer

A correlation of -1 between two stocks indicates that their returns move perfectly opposite to each other. This means when one stock's return goes up, the other's goes down by a proportionate amount, and vice versa.

If the Correlation Between Two Stocks Is -1, the Returns