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Why can the covariance of a pair of random variables be negative when the variance of random variables is always non-negative?

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

1. Evidence that may come from narrative accounts of historical or contemporary events is called ____________ evidence.

a. Quantifiable evidence

b. Quantitative evidence

c. Qualitative evidence

d. Quasi evidence

2. Why is correlation not always the explanation of a cause-and-effect argument?

a. Cause-and-effect argument doesn't happen in comparative politics.

b. Only positive correlation is explanatory.

c. Correlative links do not necessarily imply causation.

d. Negative correlation necessarily negates association.

3. Endogeneity refers to:

a. A circumstance when a variable creates its own correlation

b. A circumstance when a theory can be tested with evidence

c. A circumstance when two variables exhibit mutual or reciprocal effects

d. A circumstance when two variables exhibit correlation without a causal relationship

Please select the correct statement from the choices below.

Two random variables with zero correlation tend to move in the opposite direction.

Two random variables with positive correlation tend to move in the same diretion.

Mean and variance are measured in the same units.

Covariances lie between 0 and 1.

According to the Fama-French model

beta is not a determinant of a stock's expected return.

firm size and value are important factors in explaining the realized returns on publicly traded stock.

most company stock have a beta equal.

a stock's standard deviation is the only important factor determining its return.

One critique of the CAPM is that

the market return is not calculable.

all individual stock betas equal one so the model is irrelevant.

the model's predictive power is questionable.

you can't determine the riskless rate of return.

The following ratio represents a stock's __________.

Cov(ra,rm)σ2m

riskless rate of return

beta

standard deviation

market price

risk-adjusted return

The difference between the realized return and the expected return predicted from the CAPM is the ________

Rf

β

α

σ2m

Although a profit-maximizing firm in a competitive industry may earn negative profit the short run producer surplus will always be non-negative .True False? Explain.

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