Financial Risk Manager Part 2
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Q-63. The dependence structure between the returns of financial assets plays an important role in risk measurement. For liquid markets, which of the following statements is incorrect?
A
Correlation is a valid measure of dependence between random variables for only certain types of return distributions.
B
Even if the return distributions of two assets have a correlation of zero, the returns of these assets are not necessarily independent.
C
Copulas make it possible to model marginal distributions and the dependence structure separately.
D
With short time horizons (3 months or less), correlation estimates are typically very stable.