Two assets have a coefficient of correlation of -.4.
A)Combining these assets will increase risk.
B)Combining these assets will have no effect on risk.
C)Combining these assets may either raise or lower risk.
D)Combining these assets will reduce risk.

Question

Quizplus · Accepted Answer

A negative correlation between two assets indicates that they tend to move in opposite directions. Combining such assets can reduce the overall risk of a portfolio, as the negative correlation helps to offset the movements of each asset, leading to a more stable return.

Two Assets Have a Coefficient of Correlation of -