Which statement is correct concerning the correlation of venture capital?

E

The high correlation with small-cap stocks primarily results from the implications of exit strategies, which are fundamentally connected to the value of the market.

The correct answer is C. Venture capital is negatively correlated to the large-cap stock market.

Venture capital refers to investments made in early-stage companies with high growth potential. It is typically associated with higher risk and higher potential returns compared to traditional investments. When considering the correlation of venture capital with other assets in a portfolio, several factors need to be considered.

Option A states that venture capital has a high correlation with the other assets in a portfolio. This statement is incorrect because venture capital is known to have a low correlation with traditional asset classes such as stocks and bonds. Venture capital investments are often considered alternative investments due to their unique characteristics and different risk-return profiles.

Option B states that there is a positive correlation between venture capital and treasury bills. This statement is also incorrect. Treasury bills are considered risk-free assets, and their returns are typically low but stable. Venture capital investments, on the other hand, involve higher risk and potentially higher returns. Therefore, there is generally a low correlation between venture capital and treasury bills.

Option C states that venture capital is negatively correlated to the large-cap stock market. This statement is correct. Venture capital investments often focus on early-stage companies, which are typically smaller in size and not yet publicly traded. These companies may have different risk factors and growth drivers compared to large-cap stocks. As a result, their performance tends to be less correlated with the broader stock market, particularly the large-cap segment.

Option D states that there is a small correlation between venture capital and corporate and treasury bonds. This statement is incorrect. Venture capital and traditional bonds have different risk-return profiles, and their performance tends to be unrelated. Bonds are generally considered lower risk and provide fixed income, while venture capital investments involve higher risk and potential for equity-like returns.

Option E states that venture capital is highly correlated with the small-cap stock market. This statement is incorrect. While both venture capital and small-cap stocks are associated with higher risk and growth potential, they are not necessarily highly correlated. Small-cap stocks represent publicly traded companies with smaller market capitalizations, whereas venture capital focuses on private early-stage companies. The correlation between these two asset classes can vary depending on various factors.

In summary, the correct statement concerning the correlation of venture capital is that it is negatively correlated to the large-cap stock market (Option C).