If the returns on two assets are perfectly positively correlated, adding the second asset to your portfolio when you already own the first
A)reduces the risk in the portfolio.
B)increases the risk in the portfolio.
C)has no effect on the risk in the portfolio.
D)reduces the risk in the portfolio only if you are risk averse.

Question

Quizplus · Accepted Answer

When the returns on two assets are perfectly positively correlated, adding the second asset to a portfolio that already includes the first does not change the overall risk of the portfolio, because the returns move together in the same direction and by the same proportion.

If the Returns on Two Assets Are Perfectly Positively Correlated