Other things equal,diversification is most effective when
A) securities' returns are uncorrelated.
B) securities' returns are positively correlated.
C) securities' returns are high.
D) securities' returns are negatively correlated.
E) both securities' returns are positively correlated and securities' returns are high.

Question

Quizplus · Accepted Answer

Diversification is most effective when securities' returns are negatively correlated because it reduces overall portfolio risk by offsetting losses in one security with gains in another.

Other Things Equal,diversification Is Most Effective When