A Portfolio of Two Securities That Are Perfectly Positively Correlated

question 61

Multiple Choice

A portfolio of two securities that are perfectly positively correlated has

• A) A standard deviation that is the weighted average of the individual securities standard deviations.
• B) An expected return that is the weighted average of the individual securities expected returns.
• C) No diversification benefit over holding either of the securities independently.
• D) Both b and c
• E) All of the above

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Definitions:

Independent Variable

The variable in an experiment that is manipulated or changed to observe its effect on the dependent variable.

Dependent Variable

In statistical modeling, this is the variable being tested and measured, often considered the outcome variable that researchers are interested in explaining or predicting.

Correlation Coefficient

A numerical measure that assesses the strength and direction of the linear relationship between two quantitative variables.

Continuous

Refers to data that can take any value within a given range.