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

Question

Quizplus · Accepted Answer

A zero correlation between a stock portfolio and a bond portfolio means that their returns tend to vary independently of each other. It does not necessarily imply an inverse relationship or a positive covariance between them.

Suppose That a Stock Portfolio and a Bond Portfolio Have