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Even if a portfolio of common stocks were divided into three subsets like “Small-Cap Stocks”, “Large-Cap...

Even if a portfolio of common stocks were divided into three subsets like “Small-Cap Stocks”, “Large-Cap Stocks”, and “International Stocks”, they would still exhibit a correlation of almost 100% so there would be little benefit to that type of diversification. True False

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Answer #1

This statement is False.

The portfolio consisting of such stocks would have a correlation coefficient less than 1 because their investment criteria is not same. Some are investing in small size companies, some in international companies and some in large size so the overall return pattern would not be similar. The diversification phenomenon would work in this

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