Which of the following statements is correct?
A)Uncorrelated assets have a correlation of -1.0.
B)Most common stocks are positively correlated with each other because they are impacted by the economic factors.
C)We can typically add many stocks together to fully eliminate the market risk in a portfolio.
D)None of these choices are correct.

Question

Quizplus · Accepted Answer

This statement is correct because common stocks are often influenced by the same macroeconomic factors such as interest rates, inflation, and GDP, making them positively correlated with each other. A is incorrect because uncorrelated assets have a correlation coefficient of 0, not 1. C is incorrect because while diversification can reduce specific risk, it cannot fully eliminate market risk in a portfolio. D is incorrect because statement B is correct.

Which of the Following Statements Is Correct