Which of the following statements is most correct?
A) Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk.
B) Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk.
C) Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk.
D) Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk.

Question

Quizplus · Accepted Answer

Combining negatively correlated assets leads to diversification benefits where the losses of one asset can be offset by the gains of another. This results in a lower level of risk without compromising the expected return of the portfolio. Therefore, B is the most correct statement.

Which of the Following Statements Is Most Correct