Combining negatively correlated assets can reduce the overall variability of returns.

Name: Combining negatively correlated assets can reduce the overall variability of returns.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

When assets are negatively correlated, they tend to move in opposite directions, meaning when one is declining, the other may be rising. By combining these assets, their movements may offset each other, resulting in a more stable return. This is known as diversification and is a commonly used investment strategy.

Combining Negatively Correlated Assets Can Reduce the Overall Variability of Returns