Which of the following statements correctly describe aspects of the diversification benefit associated with combining two assets into a portfolio? Group of answer choices A. When the returns of the two assets are perfectly positively correlated, a zero-risk portfolio can be formed. B. In order to achieve any diversification benefit, the returns of the two assets must be negatively correlated. C. More than one of the other statements is correct. D. Holding all else constant, as the correlation coefficient between the returns of the two assets falls, the risk of the portfolio will also be reduced.
Which of the following statements correctly describe aspects of the diversification benefit associated with combining two assets into a portfolio? Group of answer choices A. When the returns of the two assets are perfectly positively correlated, a zero-risk portfolio can be formed. B. In order to achieve any diversification benefit, the returns of the two assets must be negatively correlated. C. More than one of the other statements is correct. D. Holding all else constant, as the correlation coefficient between the returns of the two assets falls, the risk of the portfolio will also be reduced.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Which of the following statements correctly describe aspects of the diversification benefit associated with combining two assets into a portfolio?
Group of answer choices
A. When the returns of the two assets are perfectly positively correlated, a zero-risk portfolio can be formed.
B. In order to achieve any diversification benefit, the returns of the two assets must be negatively correlated.
C. More than one of the other statements is correct.
D. Holding all else constant, as the correlation coefficient between the returns of the two assets falls, the risk of the portfolio will also be reduced.
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