All else the same, actions or events that cause firm returns to be less correlated with changes in the economy will _______ the firm's systematic risk.
A) Increase.
B) Decrease.
C) Not affect.
D) Affect (direction not determinable).
E) Increase the firm's unsystematic risk but not affect.

Question

Quizplus · Accepted Answer

Decreasing the correlation of a firm's returns with changes in the economy reduces the firm's exposure to market-wide, or systematic, risk. This is because systematic risk is the risk inherent to the entire market or market segment, and a lower correlation means the firm's returns are less affected by market-wide changes.

All Else the Same, Actions or Events That Cause Firm