The ____ correlated the returns from two securities are, the ____ will be the portfolio effects of risk reduction.
A) more positively; greater
B) greater; greater
C) less positively; greater
D) lower; lower

Question

Quizplus · Accepted Answer

When the correlation between the returns of two securities is less positive, the portfolio effects of risk reduction will be greater. This is because assets with lower correlation tend to move in opposite directions, which results in a more diversified portfolio with lower overall risk. Higher correlation leads to less diversification and therefore less risk reduction in a portfolio.

The ____ Correlated the Returns from Two Securities Are, the ____

The Correlated the Returns from Two Securities Are, the