CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

Covariance of returns is positive ______.
A. when the return on one asset is above its expected value and the return on the other asset is above its expected value
B. when the return on one asset is below its expected value and the return on the other asset is above its expected value
C. when the return on one asset is above its expected value and the return on the other asset is also below its expected value
Explanation: Covariance of returns is positive when the return on one asset is above its expected value and the return on the other asset is above its expected value.

User Contributed Comments 2

User Comment
sh21 Aren't B and C pretty much the same thing?
ksnider Covariance(A,B) = E[(A - E(A)) * (B - E(B))]
so if A > E(A) and B > E(B) then positive
also if A < E(A) and B < E(B) then positive
Answer C and B are the same thing, so you can eliminate both and are left with only Answer A
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