The volatility of Home Depot share prices is 30% and that of General Motors shares is 30%.When I hold both stocks in my portfolio and the stocks' returns have a correlation of 1,the overall volatility of returns of the portfolio is:
A)more than 30%.
B)less than 30%.
C)unchanged at 30%.
D)zero.
E)Cannot say for sure

Question

Quizplus · Accepted Answer

When the returns of two stocks have a correlation of 1, it means they move perfectly in sync with each other. Holding both stocks in a portfolio, in this case, does not diversify the risk at all, and the overall volatility of the portfolio remains the same as the volatility of the individual stocks, which is 30%.

The Volatility of Home Depot Share Prices Is 30% and That