Which of the Following Statements About Correlation Is Correct

question 39

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 that 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 that have correlation coefficients equal to zero 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 positively-related stocks are combined to form portfolios, especially when the correlation coefficients are equal to +1.

---

Definitions:

World's Leading

A term often used to describe a company, product, or service that is recognized as the most successful, advanced, or highest quality in its field on a global scale.

Trade Feedback Effect

A phenomenon where an increase in exports leads to an increase in national income and, consequently, an increase in imports.

Economic Flows

Refers to the movements of funds that reflect economic activity, including the flow of money within and between countries, such as trade, investment, and financial transactions.

Free Trade

International trade left to its natural course without tariffs, quotas, or other restrictions.