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Question

A measure of how the returns of two risky assets move in relation to each other is the:

A Range Correct Answer Incorrect Answer
B Covariance Correct Answer Incorrect Answer
C Standard deviation Correct Answer Incorrect Answer
D Coefficient of correlation Correct Answer Incorrect Answer
E Correlation Correct Answer Incorrect Answer

Solution

The covariance is defined as the co-movement of the returns of two assets or how well the returns of risky assets move together. Range and standard deviation are measures of dispersion and measure risk, not how assets move together.

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