Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

Question

Quizplus · Accepted Answer

This is true because when assets are positively correlated, they tend to move in the same direction, increasing the variability of returns in the portfolio. This results in a higher standard deviation, which measures the degree of variability of returns around the expected return.

Increasing the Correlation Among Assets in a Portfolio Results in an Increase