In general,the lower the correlation between asset returns,the greater the benefit of diversification.

Question

Quizplus · Accepted Answer

When asset returns are not highly correlated, they provide diversification benefits because they do not move together. This means that when one asset is underperforming, another asset may be performing well, thus reducing overall portfolio risk. Therefore, the lower the correlation between asset returns, the greater the diversification benefits.

In General,the Lower the Correlation Between Asset Returns,the Greater the Benefit