What is the correlation coefficient between the market return and a risk-free asset?
A) +¥
B) -¥
C) +1
D) -1
E) Zero

Question

Quizplus · Accepted Answer

The correlation coefficient between the market return and a risk-free asset is typically zero. This is because the return on a risk-free asset is not influenced by market movements, and therefore there is no linear relationship between the two variables. A correlation coefficient of +1 or -1 indicates a perfectly positive or negative linear relationship, while a coefficient of zero indicates no linear relationship. Therefore, option E is the correct answer.

What Is the Correlation Coefficient Between the Market Return and a Risk-Free