Investing in two assets with a correlation coefficient of 1 will reduce which kind of risk?
A) market risk
B) unique risk
C) unsystematic risk
D) none of these options (With a correlation of 1, no risk will be reduced.)

Question

Quizplus · Accepted Answer

A correlation coefficient of 1 means the two assets move exactly in tandem with each other. Therefore, diversifying by investing in them does not reduce any type of risk, as their returns are perfectly correlated.

Investing in Two Assets with a Correlation Coefficient of 1