Q811
Portfolio which consists of perfectly positive correlated assets having no effect of
A.
negativity
B.
positivity
C.
correlation
D.
diversification
AnswerAnswer: Option D
Solution
Answer: Option D
Solution:
Portfolio which consists of perfectly positive correlated assets having no effect of diversification. Diversification reduces the variability when the prices of individual assets are not perfectly correlated. In other words, investors can reduce their exposure to individual assets by holding a diversified portfolio of assets. As a result, diversification will allow for the same portfolio return with reduced risk.