Portfolio risk can be reduced by reducing portfolio weights for assets with positive correlations.

Question

Quizplus · Accepted Answer

When assets in a portfolio have positive correlations, their prices tend to move in the same direction. This means that if one asset goes down in value, there is a higher likelihood that other assets in the portfolio will also go down in value. By reducing the portfolio weights for assets with positive correlations, the impact of any one asset's price movements on the overall portfolio is reduced, which in turn reduces the overall risk of the portfolio.

Portfolio Risk Can Be Reduced by Reducing Portfolio Weights for Assets