A portfolio manager is considering adding another security to his portfolio. The correlations of the 5 alternatives available are listed below. Which security would enable the highest level of risk diversification?
A)0.0
B)0.25
C)-0.25
D)-0.75
E)1.0

Question

Quizplus · Accepted Answer

A correlation of -0.75 indicates a strong negative relationship, which provides the highest level of risk diversification by reducing overall portfolio risk.

A Portfolio Manager Is Considering Adding Another Security to His