If two assets with return on correlation coefficients of less than one make up a portfolio, then the portfolio does not take advantage of any diversification benefits.

Question

Quizplus · Accepted Answer

When two assets with return or correlation coefficients of less than one make up a portfolio, the portfolio takes advantage of diversification benefits. Diversification benefits arise because the two assets have a lower correlation, meaning that their returns are not perfectly correlated. This reduces the overall risk of the portfolio as losses in one asset can be offset by gains in the other.

If Two Assets with Return on Correlation Coefficients of Less