When you compile a portfolio of stocks, you should avoid including stocks that exhibit
A) a high negative correlation.
B) a high positive correlation.
C) no correlation.
D) an inverse correlation.

Question

Quizplus · Accepted Answer

A high positive correlation between stocks in a portfolio increases risk because it means the stocks tend to move in the same direction at the same time. Diversification aims to reduce risk by combining assets that do not move in lockstep.

When You Compile a Portfolio of Stocks, You Should Avoid