A change in the correlation coefficient of the returns of two securities in a portfolio causes a change in:
A) both the expected return and the risk of the portfolio.
B) only the expected return of the portfolio.
C) only the risk level of the portfolio.
D) neither the expected return nor the risk level of the portfolio.

Question

Quizplus · Accepted Answer

The correlation coefficient affects the risk (volatility) of the portfolio by influencing how the returns of the two securities move together, but it does not affect the expected return.

A Change in the Correlation Coefficient of the Returns of Two