Portfolio theory tells us that by investing in securities with yields that are inversely related over time:

Question

Quizplus · Accepted Answer

Portfolio theory, particularly as articulated in the concept of diversification, suggests that by investing in securities whose yields move inversely to each other over time, investors can achieve a given yield with less risk (A), potentially obtain higher yields for the same level of risk (B), and may need to engage in a two-way capital flow to maintain portfolio balance as market conditions change (C). This is because diversification reduces unsystematic risk.

Portfolio Theory Tells Us That by Investing in Securities with Yields