In general,which stocks should be combined into a portfolio if the goal is the greatest reduction possible in overall portfolio risk?
A) Stocks with returns that are positively correlated
B) Stocks with returns that are not correlated
C) Stocks with returns that have the highest specific risk
D) Stocks that have the highest expected returns

Question

Quizplus · Accepted Answer

Stocks with returns that are not correlated will have a lower overall portfolio risk when combined because they do not all move in the same direction at the same time. This means that if one stock in the portfolio is performing poorly, the other stocks may still be doing well, reducing the overall risk.

In General,which Stocks Should Be Combined into a Portfolio If