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Correlation and Prediction of Asset Values

3. If the correlation coefficient between the returns of two assets is zero, it means that
a. there is no possibility for reducing risk through diversification
b. the two assets can be combined in a way which leads to zero risk
c. at least one of the two assets is risk free (i.e. the standard deviation of returns is zero)
d. the returns are independent and some risk reduction can be achieved through diversification

4. Proponents of the Efficient Markets Hypothesis think technical analysts
a. should focus on relative strength
b. should focus on resistance levels
c. should focus on support levels
d. should focus on financial statements
e. are wasting their time

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3. In probability theory and statistics, correlation indicates the strength and direction of a linear relationship. It varies from -1, indicating that the investments' returns move in ...

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Multiple choice questions in financial economics