Explanation

Negative covariance indicates that two variables tend to move in opposite directions. When one variable increases, the other tends to decrease, and vice versa.

Key points:

• Covariance measures the directional relationship between two random variables.
• Positive covariance indicates that the variables move together in the same direction.
• Negative covariance indicates that the variables move in opposite directions.
• Zero covariance indicates no linear relationship between the variables.

Why other options are incorrect:

• Option A: "The returns of two assets move together in the negative direction" - This is incorrect because negative covariance doesn't mean both returns are negative; it means they move in opposite directions.
• Option C: "The returns of two assets are move in the positive direction" - This describes positive covariance, not negative covariance.
• Option D: "None of the above" - This is incorrect because option B is the correct answer.

Example: If Asset A's returns increase when Asset B's returns decrease (and vice versa), they have negative covariance.