The Diversification Effect of a Portfolio of Two Stocks

question 27

Multiple Choice

The diversification effect of a portfolio of two stocks:

• A) increases as the correlation between the stocks declines.
• B) increases as the correlation between the stocks rises.
• C) decreases as the correlation between the stocks rises.
• D) Both increases as the correlation between the stocks declines; and decreases as the correlation between the stocks rises.
• E) None of these.

---

Definitions:

Diverse Workforce

Represents a range of employees with varying gender, age, race, ethnicity, cultural background, sexual orientation, religious belief, and physical abilities.

Global Marketplace

An interconnected system for trading goods and services that transcends national borders, integrating economies worldwide.

Management Challenge

The myriad of difficulties and obstacles that managers face in planning, organizing, leading, and controlling within an organization to achieve its goals.

Diversity Leadership

The practice of acknowledging, appreciating, and utilizing the diverse backgrounds and perspectives within an organization to drive success.