Canadian Securities Course (CSC) Level 2 Practice Exam 2025 – Comprehensive Prep Resource

Correlation in the context of investments refers to a statistical measure that expresses the degree to which two variables move in relation to one another. When discussing investments, this typically relates to how the returns of different assets or securities interact with each other. A high positive correlation indicates that when one investment increases in value, the other investment tends to increase as well, while a negative correlation suggests that as one investment rises, the other tends to fall.

Understanding correlation is essential for investors as it aids in diversification strategies. By combining assets with low or negative correlations, investors can potentially reduce portfolio risk without sacrificing expected returns. Thus, option C accurately captures the essence of correlation in the investment realm.

The other options refer to different concepts in finance. Variability relates to the spread of returns, the difference between expected and actual returns deals with performance measurement, and excess returns concern the performance of an investment relative to a benchmark or risk-free rate, none of which define correlation.