Combining Uncorrelated Assets Can Reduce Risk; However, Not as Effectively

question 23

True/False

Combining uncorrelated assets can reduce risk; however, not as effectively as combining negatively correlated assets, but more effectively than combining positively correlated assets.

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Definitions:

Interest Rate Swap

A financial derivative contract in which two parties agree to exchange future interest rate payments, typically one fixed-rate and one variable-rate.

Fair Value

A financial term referring to the estimated market value of an asset, based on current market prices.

Available For Sale

A classification for financial assets indicating that they are neither held for trading purposes nor intended to be held to maturity, implying they can be sold to meet liquidity needs or strategic goals.

Idle Funds

Money that is not currently invested or used in transactions, potentially earning no interest or profit.