Which of the following statements is correct?
A) Uncorrelated assets have a correlation of −1.0.
B) Most common stocks are positively correlated with each other because they are impacted by the economic factors.
C) We can typically add many stocks together to fully eliminate the market risk in a portfolio.
D) None of the statements are correct.

Question

Quizplus · Accepted Answer

Most common stocks are positively correlated with each other because they are impacted by the economic factors. Correlation can range from -1.0 (perfect negative correlation) to 1.0 (perfect positive correlation), so statement A is incorrect. Similarly, statement C is incorrect as adding many stocks together will diversify the portfolio but cannot fully eliminate market risk. Therefore, the correct statement is B.

Which of the Following Statements Is Correct