Which of the following statements is most correct?
A)Combining positively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk.
B)Combining negatively correlated assets having the same expected return results in a portfolio with the same level of expected return and a lower level of risk.
C)Combining positively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk.
D)Combining negatively correlated assets having the same expected return results in a portfolio with a lower level of expected return and a lower level of risk.
E)all of the above

Question

Quizplus · Accepted Answer

Combining negatively correlated assets (assets that move in opposite directions) results in a portfolio with a lower level of risk. This is because when one asset is performing poorly, the other is likely to be performing well, reducing overall portfolio risk. However, combining assets with the same expected return does not necessarily result in the same level of expected return for the portfolio.

Which of the Following Statements Is Most Correct