What does the correlation matrix tell us about a portfolio of stocks? Option: The total value of the portfolio, The correlation between any two stocks in the portfolio, The risk-free rate of the portfolio, The average return of the stocks

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What does the correlation matrix tell us about a portfolio of stocks?

The total value of the portfolio

The correlation between any two stocks in the portfolio

The risk-free rate of the portfolio

The average return of the stocks

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What is the correlation between a stock and itself?

0.5

0

It depends on the stock

1

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What does covariance measure in the context of the stock market?

The average return of two stocks

The total return of two stocks

The difference in risk between two stocks

How the stock prices of two or more stocks move together

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How is covariance typically calculated and presented when a portfolio contains more than two stocks?

Using a variance-covariance matrix

Covariance is not calculated for portfolios with more than two stocks

Using a complex algorithm that considers all stock relationships

Using a simple average of all stock covariances

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What does a correlation of +0.85 between two stocks indicate?

The stocks will always move in the same direction with the same magnitude.

The stocks are likely to move in opposite directions with similar magnitudes.

The stocks are likely to move in the same direction, with a strong tendency to move together.

The stocks are not related to each other in terms of price movement.

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Where in the correlation matrix can you find the correlation of a stock with itself?

In the last column

In the first row

Randomly distributed throughout the matrix

Along the diagonals