The Benefits of Portfolio Diversification Are Highest When the Individual

question 54

Multiple Choice

The benefits of portfolio diversification are highest when the individual securities within the portfolio have returns that:

• A) vary directly with the rest of the portfolio.
• B) vary proportionally with the rest of the portfolio.
• C) are less than perfectly correlated with the rest of the portfolio.
• D)are perfectly correlated with the market portfolio.

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Definitions:

Law Of Nature

Generalization that describes a consistent natural phenomenon but does not propose a mechanism.

Scientific Explanation

A rationale based on evidence and reasoning to explain natural phenomena or experimental results.

Scientific Method

A systematic process for carrying out research and experimentation, involving observation, hypothesis formulation, experimentation, and conclusion.