A Portfolio Manager Is Considering Adding Another Security to His

question 46

Multiple Choice

A portfolio manager is considering adding another security to his portfolio.The correlations of the 5 alternatives available are listed below.Which security would enable the highest level of risk diversification?

• A) 0.0
• B) 0.25
• C) -0.25
• D) -0.75
• E) 1.0

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Definitions:

Problem-Solving Rules

Heuristic or algorithmic guidelines used to facilitate the process of finding solutions to problems, often taught in educational and professional training contexts.

Hypothetical-deductive reasoning

A method of problem-solving or decision-making that starts with a hypothesis or a proposed explanation, then deduces logical consequences to test the hypothesis.

Logical implications

The relationship between statements where the truth of one indicates the truth of another; foundational in reasoning and argumentation.

Premises

Buildings and land owned or occupied by a person or organization.