Firms investing in industries or countries whose economic cycles are highly correlated may lower the overall volatility in their consolidated earnings and cash flows.

Question

Quizplus · Accepted Answer

Investing in industries or countries with highly correlated economic cycles tends to increase the risk of experiencing simultaneous downturns, thereby potentially increasing overall volatility in consolidated earnings and cash flows rather than lowering it. Diversification typically aims to invest in uncorrelated or negatively correlated assets to reduce volatility.

Firms Investing in Industries or Countries Whose Economic Cycles Are