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 -1, you will find that the points of the scatter diagram and the line of best fit has a .

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

Question

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 -1, you will find that the points of the scatter diagram ________ and the line of best fit has a ________.

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

patel rushi shaileshkumar · Accepted Answer

Final Answer : B, Explanation :  A correlation coefficient of -1 indicates a perfect negative linear relationship between stock A and the market index. Therefore, all the points of the scatter diagram will fall exactly on the line of best fit, which will have a negative slope.

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