Question

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.

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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