Which of the Following Statements About Correlation Is Correct

question 31

Multiple Choice

Which of the following statements about correlation is correct?

• A) If the returns from two stocks are perfectly positively correlated and the two stocks have equal variance, an equally weighted portfolio of the two stocks will have a variance, which is less than that of the individual stocks.
• B) If a stock has a negative correlation with market, its systematic risk is more than the market risk.
• C) Stocks with no correlation will have minimum diversification benefits.
• D) The weaker the positive correlation two stocks exhibit, the more risk can be reduced when they are combined in a portfolio.
• E) Risk is reduced when negatively related stocks are combined to form portfolios as long as the correlation coefficient is not equal to -1.

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Definitions:

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Leaders at the highest level of an organization who possess a magnetic personality and the ability to inspire and motivate others through their vision and personal appeal.

Positive Outcomes

Favorable results or effects that stem from specific actions or activities.

Essential Attribute

A fundamental or innate quality considered necessary for a particular role, function, or task.

Charisma

A compelling attractiveness or charm that can inspire devotion or enthusiasm in others.