The returns on Asset A are strongly,negatively correlated with Asset B's returns;thus,holding the two assets together will
A)significantly reduce portfolio risk.
B)significantly increase portfolio risk.
C)have little or no effect on portfolio risk.
D)significantly reduce portfolio return.

Question

Quizplus · Accepted Answer

The negative correlation between Asset A and Asset B means that when one asset's return decreases, the other's return increases. This provides a form of diversification that can significantly reduce portfolio risk. By holding both assets together, the portfolio's overall risk is decreased.

The Returns on Asset a Are Strongly,negatively Correlated with Asset