Which two of the following provide useful rules to assess the degree of risk reduction (provided there is not perfectly positive correlation)?
A) The smaller the number of securities, the lower the risk.
B) The more negative the correlation the better.
C) The more positive the correlation the better.
D) The greater the number of securities, the lower the risk.

Question

Quizplus · Accepted Answer

Negative correlation helps in risk reduction as it allows for diversification benefits. A greater number of securities generally leads to lower risk due to diversification.

Which Two of the Following Provide Useful Rules to Assess