Question

true or false

as the correlation between two stocks changes , the shape of investment opportunity set will not change

Answer #1

ANS , TRU

as if 2 assets portfolio are corelated to each other either (perfectly correlated or negative correlated ) the shape doesn't change but the value does for example, there are two stocks in my portfolio stock A and stock B both have positive correlation with each other means if price of A increases the price of B also increases so the shap will be same it doesn't change its sdhampe only the amount can go up or down

even if two assts are negatively correlated with each other it means if porices of A increases leads to decrease in prices of the B . here also shape would remain same only the amount could go up or down.

True or False: Assuming a linear relationship between X and Y,
if the coefficient of correlation (r) equals 0.50, this means that
50% of the variation in the dependent variable (Y) is due to
changes in the independent variable (X).

True or False: Assuming a linear relationship between X
and Y, if the coefficient of correlation (r)
equals 0.50, this means that 50% of the variation in the dependent
variable (Y) is due to changes in the independent variable (X).

a correlation of 0.03 is considered to be a null one
true or false
an strong correlation between two variables establishes a cause
and effect relationship between them
true or false
a positive correlation is also known as direct
true or false
if r=1 then all points in the scatter diagram are over the line
of regression
true or false

Answer each of the following as True or False:
In a linear correlation testing, any positive value for the
linear correlation coefficient (r) statistic always indicates a
positive correlation between the two variables.
The chi-square test for independence is similar to a
correlation in that it evaluates the relationship between two
variables.
It is impossible to obtain a value less than zero for the
chi-square statistic, unless a mistake is made.
In a two-sample t-test, it makes a difference which...

When two assets have +1 correlation...
The investment opportunity set is the line connecting the two
assets.
The assets’ covariance can be positive or negative.
Knowing that one asset’s return is above its expected return tells
you nothing about the other asset’s return.
The Minimum Variance Portfolio’s return is the risk free rate.

TRUE or FALSE: A correlation coefficient distinguishes between
independent and dependent variables.

True or False, Owning many different stocks is riskier than a
large investment in a single company.

The correlation between stocks A and B is 0.50, while the
correlation between stocks A and C is −0.5. You already own Stock A
and are thinking of buying either Stock B or stock C. If you want
your portfolio to have the lowest possible risk, would you buy
stock B or C? Would you expect the stock you choose to affect the
return that you earn on your portfolio?

Discuss how the correlation between the returns on two
individual stocks can affect the risk of a portfolio that contains
the two stocks. Discuss how this explains what happens when we
diversify effectively.

True or False. If you observe a correlation between measures,
you have found the cause and the effect.
Please explain in detail.

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