Question

You have a portfolio of two risky stocks that has no diversification benefit. The lack of...

You have a portfolio of two risky stocks that has no diversification benefit. The lack of any diversification benefit must be due to the fact that:

A.

the returns of the two stocks move perfectly opposite of one another.
B.

the two stocks are completely unrelated to one another.
C.

one of the two assets is a risk free asset.
D.

the returns of the two stocks move perfectly in sync with one another.
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Answer #1

Correct option is D

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The returns of the two stocks move perfectly in sync with one another.

Loss of one stock is offset by gain of the second stock.

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Feel free to comment if you need further assistance J

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