If you have a portfolio of two risky stocks which turns out to have no diversification. The reason you have no diversification is:
A) the returns are too small.
B) the returns move perfectly opposite of one another.
C) the returns are too large to offset.
D) the returns move perfectly with one another.
E) the returns are completely unrelated to one another.

Question

Quizplus · Accepted Answer

Diversification benefits are not realized when the returns of the stocks in the portfolio move perfectly with one another, as this indicates a correlation coefficient of +1, meaning the stocks' returns are perfectly positively correlated, and thus, risks are not offset.

If You Have a Portfolio of Two Risky Stocks Which