Question

In order to get the most risk reduction through diversification you would seek to add assets to the portfolio that have a _____________ correlation with other assets in the portfolio.

• A. high positive

• B. low positive

• C. zero

• D. negative

• E. variable

Answer 1

Correct Answer is option D
Negative correlation Diversification - Negative correlation means if the portfolio has 2 stocks and there is perfectly negative coreelation i.e -1, means if one stock decrease other stock is increase by same percentage as decrease by another one.
There will be a most risk reduction. Benefit of diversification is there is there is negative correlation.

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