Question

If a stockʹs returns are positively correlated with the returns on the general stock market, then        

Its market-beta must be greater than 1.0

Its market-beta must be exactly equal to 1.0                                                       

Its returns will increase or decrease by the same percentage as the percentage increase or decrease in the general stock market

None are correct choices

Answer 1

Positive correlation happens when two variables move in same direction. If the market is moving in one direction and the stock follows in the same direction then the stock would be said to be positively correlated with the market.

Beta of 1 means for every 1% of change of the market, security has to change by 1% so it would not be the correct assumption that would fit for positive correlation.

option (C)is also incorrect because it is an example for Perfect Positive Correlation as it is changing by the exact same amount so it is an example of perfectly positive correlation of two securities but the question is only specifying about positive correlation so option( C) is also false.

So the correct answer would be option (D). None of the above.