Combining uncorrelated assets will
A)increase the overall risk level of a portfolio.
B)decrease the overall risk level of a portfolio.
C)not change the overall risk level of a portfolio.
D)cause the other assets in the portfolio to become positively related.

Question

Quizplus · Accepted Answer

Combining uncorrelated assets can reduce the overall risk level of a portfolio because uncorrelated assets have the potential to offset each other's risks. This is known as diversification. Consequently, adding uncorrelated assets reduces the portfolio's overall risk level without sacrificing expected returns.

Combining Uncorrelated Assets Will