Which of the following statements is FALSE?
A)The maximum benefits to diversification between securities occur when they are perfectly positively correlated.
B)The maximum benefits to diversification between securities occur when they are perfectly negatively correlated.
C)There is some benefit to diversification when the correlation between securities is 0.0.
D)There is some benefit to diversification when the correlation between securities is greater than 0.0 but less than 1.0.

Question

Quizplus · Accepted Answer

This statement is false. The maximum benefits to diversification between securities occur when they are perfectly negatively correlated, not positively correlated. When securities are perfectly negatively correlated, the returns of one security will completely offset the losses of the other security, resulting in a portfolio with lower risk.

Which of the Following Statements Is FALSE