If the return on two stocks is highly and positivelycorrelated , combining these stocks will reduce the risk associated with the portfolio.

Question

Quizplus · Accepted Answer

When two stocks are highly and positively correlated, their prices tend to move in the same direction, which means combining them does not significantly reduce the overall risk of the portfolio. Diversification benefits are limited when assets are highly correlated.

If the Return on Two Stocks Is Highly and Positivelycorrelated