If General Auto and Crystal Auto have returns that are perfectly positively correlated, then adding Crystal Auto to a portfolio that already contains General Auto will
A)reduce the risk in the portfolio.
B)increase the risk in the portfolio.
C)neither increase nor decrease the risk in the portfolio.
D)reduce the risk in the portfolio only for risk-averse savers.

Question

Quizplus · Accepted Answer

When two assets have returns that are perfectly positively correlated, adding one to a portfolio that already contains the other does not change the overall risk level of the portfolio. The risks move together in the same direction and by the same proportion, leaving the portfolio's risk profile unchanged.

If General Auto and Crystal Auto Have Returns That Are