Where two securities are perfectly positively correlated,there is no reduction in unsystematic risk through diversification.

Question

Quizplus · Accepted Answer

This is because perfect positive correlation means that the movements of the two securities are completely synchronized, and therefore, holding both securities does not reduce the unsystematic risk. However, systematic risk can still be reduced through diversification.

Where Two Securities Are Perfectly Positively Correlated,there Is No Reduction