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:

Misuse

Misuse is the incorrect, improper, or excessive use of something, often leading to negative outcomes or harm.

Preventive Approach

Strategic actions taken to avoid potential problems or diseases before they occur.

Aging

The process of becoming older, a series of biological changes that occur in all living organisms over time, often leading to a gradual decrease in physical and sometimes mental capacity.

Discrimination

Unjust or prejudicial treatment of different categories of people, often based on race, age, sex, or disability.