If two events are perfectly positively correlated,then
A) diversification is not necessary since there is no risk.
B) diversification eliminates all risk.
C) diversification does not reduce risk at all.
D) diversification only cuts the risk in half.

Question

Quizplus · Accepted Answer

Perfectly positively correlated events move in the same direction and have a correlation coefficient of +1. Diversification aims to reduce risk by investing in different assets that are not perfectly correlated with each other. If two events are perfectly positively correlated, diversification will not reduce risk at all.

If Two Events Are Perfectly Positively Correlated,then