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The higher the correlation between the securities held in a GP, the lower the overall total...

The higher the correlation between the securities held in a GP, the lower the overall total risk.

True

False

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Answer #1

Solution.>

The statement is FALSE.

If there is a high correlation between securities, the diversification will be less and when the price of one security goes down, the price of other security goes down too, increasing the overall risk.

Hence, the lower the correlation between the securities held in a GP, the lower the overall risk. Securities with the correlation of -1 (negatively correlated) would lead to the least risk.

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