If you are looking to add a new mutual fund for the purpose of diversification, the fund you would select would have what?

Question

Quizplus · Accepted Answer

When adding a new mutual fund for the purpose of diversification, select the fund with the largest negative correlation; this is the Rule 3 for appropriate fund selection. Rule 1: If the R² is 70 percent or more, select the fund with the highest Treynor or Jensen ratio. Rule 2: If the R² is less than 70 percent, select the fund with the highest Sharpe ratio.

If You Are Looking to Add a New Mutual Fund