Combining uncorrelated assets should
A) increase the overall risk level of a portfolio.
B) decrease the overall risk level of a portfolio.
C) not change the overall risk level of a portfolio.
D) cause the other assets in the portfolio to become positively related.

Question

Quizplus · Accepted Answer

Combining uncorrelated assets can decrease the overall risk level of a portfolio through diversification. By investing in assets that are not correlated or have low correlation, the portfolio can reduce its overall risk level as fluctuations in the value of one asset are not necessarily reflected in the others. As a result, the portfolio becomes less volatile and more stable over time, making it less risky for investors.

Combining Uncorrelated Assets Should