If two assets with return correlation coefficients less than one make up a portfolio, then the portfolio does not take advantage of any diversification benefits.

Question

Quizplus · Accepted Answer

If two assets with return correlation coefficients less than one make up a portfolio, there is still some diversification benefit. The greater the difference between the correlation coefficients of the assets, the greater the diversification benefit. Even if the correlation coefficient is not zero, a portfolio with assets that have correlation coefficients less than one can result in reduced risk and increased returns.

If Two Assets with Return Correlation Coefficients Less Than One