Consider the following correlations:
$$\begin{array} { l r r r r }
\text { IBM } & \text { IBM } & \text { Apple } & \text { Disney } \
\text { Apple } & - 0.2 & 1 & \
\text { Dirney } & 0.3 & - 0.7 & 1
\end{array}$$
Given this data, which of the following is most preferable if an investor can only select one pair of companies?
A) Apple and IBM
B) Disney and IBM
C) Disney and Apple
D) It does not matter which two are selected-there is no preference.

Question

Consider the following correlations:
$$\begin{array} { l r r r r } 
\text { IBM } & \text { IBM } & \text { Apple } & \text { Disney } \
\text { Apple } & - 0.2 & 1 & \
\text { Dirney } & 0.3 & - 0.7 & 1
\end{array}$$
Given this data, which of the following is most preferable if an investor can only select one pair of companies?
A) Apple and IBM
B) Disney and IBM
C) Disney and Apple
D) It does not matter which two are selected-there is no preference.

Quizplus · Accepted Answer

The pair with the most negative correlation is Disney and Apple (-0.7), which is preferable for diversification as it reduces risk.

Consider the Following Correlations Given This Data, Which of the Following Is Most Preferable