Lower (less positive and more negative) the correlation between asset returns, ________.
A) lesser the potential diversification of risk
B) greater the potential diversification of risk
C) lower the potential profit
D) lesser the assets have to be monitored

Question

Quizplus · Accepted Answer

Greater the potential diversification of risk because lower or more negative correlation between asset returns means that the assets are less likely to move in the same direction at the same time, allowing for better risk spreading.

Lower (Less Positive and More Negative) the Correlation Between Asset