Which of the following correlation coefficients would provide the greatest benefit for diversification?
A) a perfectly positive correlation coefficient
B) a mildly positive correlation coefficient
C) a correlation coefficient equal to zero
D) a perfectly negative correlation coefficient

Question

Quizplus · Accepted Answer

A perfectly negative correlation coefficient (D) means that the returns on two assets move in opposite directions. In a diversified portfolio, this would ideally reduce risk, as when one asset's returns decrease, the other's increase, balancing the overall performance.

Which of the Following Correlation Coefficients Would Provide the Greatest