A portfolio consisting of securities whose returns are highly correlated is not truly diversified.

Name: A portfolio consisting of securities whose returns are highly correlated is not truly diversified.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

A truly diversified portfolio spreads risk across securities with low correlation, reducing the impact of any single security's performance on the overall portfolio. High correlation means the securities tend to move in the same direction, not providing diversification benefits.

A Portfolio Consisting of Securities Whose Returns Are Highly Correlated