Negative correlation of returns of a proposed new branch with returns of the existing branch offices and other assets can serve to lower the overall bank's riskiness and is an important justification for branch establishment.This is referred to as geographic diversification effect.

Question

Quizplus · Accepted Answer

Negative correlation between returns of different assets or branches can lower the overall risk of a portfolio, which is an important justification for geographic diversification. Therefore, the statement is true.

Negative Correlation of Returns of a Proposed New Branch with Returns