In General, Which Stocks Should Be Combined in a Portfolio

question 43

Multiple Choice

In general, which stocks should be combined in a portfolio, if the goal is to reduce overall risk?

• A)stocks with returns that are positively correlated.
• B)stocks with returns that are negatively correlated.
• C)stocks with returns that are not correlated.
• D)stocks that have the highest expected returns.

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Definitions:

State-Dependent Memory Effect

The tendency to recall information better if one is in the same pharmacological or psychological state as when the information was encoded.

Permanent Imprint

An enduring impact or mark left by an experience, object, or person that is difficult to erase or forget.

Freud

Sigmund Freud was an Austrian neurologist known for founding psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Aristotle

An ancient Greek philosopher and polymath whose works covered a wide range of subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology.