In Order to Benefit from Diversification, the Returns on Assets

question 46

Multiple Choice

In order to benefit from diversification, the returns on assets in a portfolio must:

• A) be perfectly positively correlated.
• B) be perfectly negatively correlated.
• C) positively correlated but not perfectly.
• D) have the same idiosyncratic risks.

---

Definitions:

Sandstone

A clastic sedimentary rock composed mainly of sand-sized mineral particles or rock fragments.

Rounded Pebbles

Smooth, round stones typically formed by the prolonged action of water or other forms of erosion and weathering on rocks.

Sandstone

A sedimentary rock made primarily of sand-sized grains of minerals or fragments of rocks, classified as clastic.

River

A significant stream of water that moves through a natural channel, heading towards the sea, a lake, or joining another stream.