You are constructing a scatter plot of excess returns for stock A versus the market index....

You are constructing a scatter plot of excess returns for stock A versus the market index. If the correlation coefficient between stock A and the index is 0.1, you will find that the points of the scatter diagram (select one: all fall on the line of best fit; are widely scattered around the line) and the line of best fit has a (select one: positive; negative) slope.

A. all fall on the line of best fit; positive slope
B. all fall on the line of best fit; negative slope
C. are widely scattered around the line; positive slope
D. are widely scattered around the line; negative slope

Solutions

Expert Solution

Correlation of .1 is low correlation, when stock will not be moving in relation to the market.

It will mean that these are widely scattered around the line on the positive slope because the correlation is highly lower.

Correct answer is option (C)

all other options are false because it is not a negative correlation or perfect positive correlation.

jeff jeffy answered 1 year ago

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