If the returns of two stocks are negatively correlated, then one of them must have a negative beta.

Question

Quizplus · Accepted Answer

If the returns of two stocks are negatively correlated, it means that when one stock goes up, the other tends to go down. This implies that the covariance between the two stocks is negative. Beta is a measure of the systematic risk of a stock, which is the risk that cannot be diversified away. A negative beta indicates that the stock tends to move in the opposite direction of the market. Therefore, if the returns of two stocks are negatively correlated, one of them must have a negative beta.

If the Returns of Two Stocks Are Negatively Correlated, Then