Combining Assets with Highly Correlated Returns Will Greatly Reduce Portfolio

question 41

True/False

Combining assets with highly correlated returns will greatly reduce portfolio risk.
Just the opposite: Negative correlation spreads risk more effectively.

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Definitions:

Consolidated

The combination of financial statements of a parent company and its subsidiaries into one comprehensive financial statement, presenting the business as a single economic entity.

Fair Value

The value obtained or paid in the process of selling an asset or managing a liability within a planned negotiation among market contributors on the valuation day.

Goodwill

An intangible asset that arises when a business is purchased for more than the fair value of its net identifiable assets, reflecting factors such as brand, customer base, and reputation.

Business Combination

A transaction or other event in which an acquirer gains control over one or more businesses, typically through the acquisition of equity interests or assets.