To obtain the maximum reduction in risk, an investor should combine assets that
A) are negatively correlated.
B) have a correlation coefficient of negative one.
C) are uncorrelated.
D) have a correlation coefficient of positive one.

Question

Quizplus · Accepted Answer

A correlation coefficient of negative one indicates a perfect negative correlation, meaning the assets move in exactly opposite directions, providing the maximum risk reduction through diversification.

To Obtain the Maximum Reduction in Risk, an Investor Should