When returns are perfectly positively correlated, the risk of the portfolio is:
A) zero.
B) the weighted average of the individual security's risk.
C) equal to the correlation coefficient between the securities.
D) infinite.

Question

Quizplus · Accepted Answer

When returns are perfectly positively correlated, the risk of the portfolio is the weighted average of the individual securities' risks, as there is no diversification benefit.

When Returns Are Perfectly Positively Correlated, the Risk of the Portfolio