When Adding a Randomly Chosen New Stock to an Existing

question 61

True/False

When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk.

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Definitions:

Savings

The portion of income not spent on current consumption, often set aside for future use or investment.

Investment

The act of allocating resources, usually money, with the expectation of generating an income or profit, often through the purchase of assets like stocks, bonds, or real estate.

Depression

A prolonged period of significant economic decline characterized by a substantial increase in unemployment, a drop in available credit, shrinking output, and bankruptcies.

Keynes

John Maynard Keynes was a British economist whose theories revolutionized macroeconomic practices and governmental economic policies.