In general, the lower (less positive and more negative) the correlation between asset returns,
A) the lower the potential profit.
B) the less the assets have to be monitored.
C) the less the potential diversification of risk.
D) the greater the potential diversification of risk.

Question

Quizplus · Accepted Answer

A lower correlation between asset returns means there is a greater potential for diversification of risk. If assets are negatively correlated, for example, then when one asset goes down in value, the other asset may go up in value, leading to a lower overall risk in a portfolio. However, this does not necessarily mean that potential profit is lower or that assets need to be monitored less.

In General, the Lower (Less Positive and More Negative) the Correlation