Under what circumstances can risk reduction NOT be achieved from combining investments?
A)Where the projects are perfectly positively correlated
B)Where the projects are perfectly negatively correlated
C)Where the projects have low levels of positive correlation
D)Where the projects have low levels of negative correlation

Question

Quizplus · Accepted Answer

If the projects are perfectly positively correlated, it means that they move in the same direction and are affected by the same economic factors. Combining these investments will not result in risk reduction as there is no diversification benefit. In fact, combining such investments may increase the level of risk.

Under What Circumstances Can Risk Reduction NOT Be Achieved from Combining