As long as the correlations between the securities are less than 1 or greater than -1, the northwest portion of their risk/return will
A) consist of one portfolio.
B) not allow an optimal solution.
C) be concave.
D) be a straight line.

Question

Quizplus · Accepted Answer

The northwest portion of the risk/return graph is where the efficient frontier lies, the portion where portfolios are efficient for their level of risk. If the correlations between securities are less than 1 or greater than -1, the efficient frontier will be concave. This is because the portfolio can benefit from diversification, meaning that as more securities are added, the portfolio's risk is reduced more than it would have if each security was highly correlated with one another.

As Long as the Correlations Between the Securities Are Less