In general, which stocks should be combined in a portfolio, if the goal is to reduce overall risk?
A)stocks with returns that are positively correlated.
B)stocks with returns that are negatively correlated.
C)stocks with returns that are not correlated.
D)stocks that have the highest expected returns.

Question

Quizplus · Accepted Answer

Stocks with returns that are negatively correlated have a tendency to move in opposite directions, which means that if one stock is experiencing a loss, the other stock could be experiencing a gain. This helps to cushion the overall performance of the portfolio in times of market volatility, reducing overall risk.

In General, Which Stocks Should Be Combined in a Portfolio