Why Does Diversification Fail to Reduce Risk When the Returns

question 48

Essay

Why does diversification fail to reduce risk when the returns of the two investments purchased are perfectly positively correlated?

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Definitions:

Potential Problem

A situation or condition that could become problematic if not addressed in a timely and effective manner.

Stress Management Strategies

Techniques and approaches used to control stress levels and promote relaxation and well-being.

Spirituality

The quality of being concerned with the human spirit or soul as opposed to material or physical things, often involving a sense of connection to something greater than oneself.

Social Supports

The various forms of assistance and emotional sustenance provided by members of an individual's social network, such as family, friends, and colleagues.