Which of the following securities could NOT have any benefits for diversification with your investment portfolio?
A)Treasury bills with a correlation coefficient of 0.0 with your portfolio
B)Alpha Company stock that has a correlation coefficient of -0.25 with your portfolio
C)Beta Company stock that has a correlation coefficient of 0.50 with your portfolio
D)All of these choices would reduce risk for your portfolio and therefore show at least some benefit to diversification.

Question

Quizplus · Accepted Answer

All the choices listed (A, B, and C) offer benefits for diversification. Treasury bills with a correlation coefficient of 0.0 indicate no relationship with your portfolio's returns, which can reduce overall risk. Alpha Company stock with a correlation coefficient of -0.25 suggests a slight inverse relationship, potentially offsetting losses in your portfolio. Beta Company stock with a correlation coefficient of 0.50 shows a moderate positive relationship, which still allows for diversification benefits. Therefore, all these choices would reduce risk for your portfolio and show at least some benefit to diversification.

Which of the Following Securities Could NOT Have Any Benefits