Answer: C. Suppose the returns on two stocks are negatively correlated. One has a beta of 1.2 as determined in a regression analysis using data for the last 5 years, while the other has a beta of %u22120.6. The returns on the stock with the negative beta must have been negatively correlated with returns on most other stocks during that 5-year period.
Explanation:
From the options given, the correct option is option C "Suppose the returns on two stocks are negatively correlated. One has a beta of 1.2 as determined in a regression analysis using data for the last 5 years, while the other has a beta of %u22120.6. The returns on the stock with the negative beta must have been negatively correlated with returns on most other stocks during that 5-year period".
Option A is wrong because when there is information that a particular stock will be strong in the future, one should not sell your high-beta stocks and buy low-beta stocks rather the low best stocks should be sold and high beta stocks should be bought.
Option B is wrong because during recession, collections' revenues, profits, and stock price tend to fall and not rise. During recession, there is decrease in economic growth, unemployment and other negative effects in the economy.
Option D and E are wrong as well as the reverse is the case in both situations. The correct option is C.
