A completely diversified portfolio would have a correlation with the market portfolio that is
A) equal to zero because it has only unsystematic risk.
B) equal to one because it has only systematic risk.
C) less than zero because it has only systematic risk.
D) less than one because it has only unsystematic risk.
E) less than one because it has only systematic risk.

Question

Quizplus · Accepted Answer

A completely diversified portfolio eliminates unsystematic risk, leaving only systematic risk, which moves in tandem with the market, hence a correlation of one.

A Completely Diversified Portfolio Would Have a Correlation with the Market