A portfolio will always have less risk than the riskiest asset in it if the correlation of assets is less than perfectly positive.

Question

Quizplus · Accepted Answer

This statement is true because diversification reduces risk by spreading the investment across different assets with different risks and returns. If the assets in the portfolio have less than perfect positive correlation, they are likely to move independently of each other, thus reducing the overall risk of the portfolio.

A Portfolio Will Always Have Less Risk Than the Riskiest