Even If the Correlation Between the Returns on Two Securities

question 34

True/False

Even if the correlation between the returns on two securities is +1.0, if the securities are combined in the correct proportions, the resulting 2-asset portfolio will have less risk than either security held alone.

---

Definitions:

Long-Run Adjustment

Changes in production or operations that a firm can undertake over time to adapt to new conditions, typically involving capital investment.

Assembly-Line Plant

A manufacturing facility where products are assembled in a sequential manner along a conveyor belt or line.

Average Variable Cost (AVC)

The cost per unit produced that varies, found by dividing the total variable expenses by the amount of output generated.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one additional unit of a good or service changes as production increases.