Which of the following correlation coefficients will produce the most diversification benefits?
A) -0.6
B) -0.9
C) 0.0
D) 0.4

Question

Quizplus · Accepted Answer

A correlation coefficient of -0.9 represents a strong negative correlation between two assets, indicating that they tend to move in opposite directions. This provides the greatest diversification benefits as losses in one asset may be offset by gains in the other. A correlation coefficient of -0.6 also provides some diversification benefits, but not as much as -0.9. A correlation coefficient of 0 indicates no correlation, which does not provide any diversification benefits. A correlation coefficient of 0.4 represents a positive correlation, meaning the two assets tend to move in the same direction, which does not provide diversification benefits.

Which of the Following Correlation Coefficients Will Produce the Most