Question

An analyst is reviewing two stocks in a small portfolio that include Kellogg Company (the cereal company) and Exxon (the oil company). After completing a regression analysis the correlation is computed at 0.02. This means:

		These two stocks are positively correlated.
		These two stocks are negatively correlated and will move opposite each other.
		These two stocks have no correlation so there is no pattern that they move together or against each other.
		None of these.

A measurement of the dispersion of a data set relative to it's mean that is used to measure the volatility of expected returns of a stock based on historical prices is called:

		Variance
		beta
		Regression analysis
		standard deviation

Answer 1

1.when the correlation between two stocks are very low it will mean that it will offer a higher level of diversification as stock will not move in direction of one another and they will defy each other movement.

These stocks are positively related because the correlation of .02 is positive correlation.

Correct answer is option (a) these stocks are positively correlated.

2.standard deviation is a variation of data from the mean so the correct answer Would be standard deviation.

It is deviation of the data from the mean, after the average has been found out.

Correct answer is option ( d) standard deviation.