Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that ________.
A) the returns on the stock and bond portfolios tend to move inversely
B) the returns on the stock and bond portfolios tend to vary independently of each other
C) the returns on the stock and bond portfolios tend to move together
D) the covariance of the stock and bond portfolios will be positive

Question

Quizplus · Accepted Answer

A zero correlation means that there is no linear relationship between the returns on the two portfolios. Therefore, the returns on the stock and bond portfolios tend to vary independently of each other.

Suppose That a Stock Portfolio and a Bond Portfolio Have