Answer: A correlation coefficient of 0 means that the mean returns of two assets move proportionately in a negative direction.

## Explanation **Correct Answer: C** **Why C is incorrect:** - A correlation coefficient of 0 means there is **no linear relationship** between the returns of two assets, not that they move proportionately in a negative direction. - Zero correlation indicates that the returns move independently of each other, with no predictable pattern of movement. **Why the other options are correct interpretations:** **A:** A correlation coefficient of +1 indicates a perfect positive linear relationship. When one asset's returns increase, the other's returns increase proportionately in the same direction. **B:** A correlation coefficient of -1 indicates a perfect negative linear relationship. When one asset's returns increase, the other's returns decrease proportionately in the opposite direction. **D:** This option would be correct if all interpretations were accurate, but since C is incorrect, D is not the correct answer. **Key Concepts:** - Correlation coefficient (ρ) ranges from -1 to +1 - +1 = Perfect positive correlation - -1 = Perfect negative correlation - 0 = No linear correlation (returns are uncorrelated) - The correlation coefficient measures the strength and direction of the linear relationship between two variables.

Author: Nikitesh Somanthe