Owning two securities instead of one will not reduce the risk taken by an investor if the two securities are
A)perfectly positively correlated with each other
B)perfectly independent of each other
C)perfectly negatively correlated with each other
D)of the same category,
E)g.blue chips

Question

Quizplus · Accepted Answer

If two securities are perfectly positively correlated, their values will move in the same direction, meaning that if one loses value, the other will also lose value. Holding both securities will not reduce the risk taken by the investor because they are not providing any diversification benefits.

Owning Two Securities Instead of One Will Not Reduce the Risk