The benefits of portfolio diversification are highest when the individual securities have returns that:
A)vary directly with the rest of the portfolio.
B)vary indirectly with the rest of the portfolio.
C)are uncorrelated with the rest of the portfolio.
D)are countercyclical.

Question

Quizplus · Accepted Answer

Portfolio diversification benefits are maximized when the returns of individual securities vary indirectly (or are negatively correlated) with the rest of the portfolio, as this reduces overall portfolio risk.

The Benefits of Portfolio Diversification Are Highest When the Individual