If the Returns on Two Assets Are Perfectly Positively Correlated

question 7

Multiple Choice

If the returns on two assets are perfectly positively correlated, adding the second asset to your portfolio when you already own the first

• A)reduces the risk in the portfolio.
• B)increases the risk in the portfolio.
• C)has no effect on the risk in the portfolio.
• D)reduces the risk in the portfolio only if you are risk averse.

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Definitions:

Centration

The tendency to focus on one part of a stimulus, situation, or idea and exclude all others; a characteristic of preoperational reasoning.

Egocentrism

A cognitive characteristic where an individual has difficulty understanding or considering perspectives other than their own, prevalent in early childhood.

Egocentrism

The cognitive inability to understand or assume any perspective other than one's own, often experienced by children during early development stages.

Three Mountains

A task developed in Piaget’s developmental theory to assess children's ability to understand and appreciate different perspectives.