If two investments have a positive correlation, when one increases in value, the other tends to:

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Prepare for the Qualified Financial Adviser Exam 2 with flashcards and multiple choice questions, complete with hints and explanations. Get exam-ready and increase your confidence with our comprehensive study materials!

Multiple Choice

If two investments have a positive correlation, when one increases in value, the other tends to:

Explanation:
When two investments have a positive correlation, they tend to move in the same direction. If one increases in value, the other tends to increase as well. So the correct description is that it increases. The idea is that the relationship between their movements is outwardly linked in the same direction. A decrease would reflect negative correlation, staying the same or moving unpredictably would indicate little to no positive relationship. Correlation ranges from -1 to 1, with +1 meaning perfectly aligned upward movement.

When two investments have a positive correlation, they tend to move in the same direction. If one increases in value, the other tends to increase as well. So the correct description is that it increases. The idea is that the relationship between their movements is outwardly linked in the same direction. A decrease would reflect negative correlation, staying the same or moving unpredictably would indicate little to no positive relationship. Correlation ranges from -1 to 1, with +1 meaning perfectly aligned upward movement.

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