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

Question

Quizplus · Accepted Answer

A lower correlation between asset returns means that they are less likely to move in the same direction at the same time. This provides greater potential diversification of risk, as losses in one asset can be offset by gains in another, reducing overall portfolio risk. Therefore, choice B is correct.

In General, the Lower (Less Positive and More Negative) the Correlation