You Wish to Diversify Your Single-Security Portfolio in a Way

question 53

Multiple Choice

You wish to diversify your single-security portfolio in a way that will maximize your reduction in risk.Which of the following securities should you add to your portfolio?

• A)Treasury bills that have a correlation coefficient of 0.0 with your current security
• B)Alpha Company stock that has a correlation coefficient of -0.25 with your current security
• C)Beta Company stock that has a correlation coefficient of 0.50 with your current security
• D)Delta Company bonds that have a correlation coefficient of 0.36 with your current security

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Definitions:

Heavy Drinking

The consumption of a large quantity of alcohol in a short period of time, which can lead to health issues and substance abuse problems.

Calories During Pregnancy

Refers to the recommended dietary intake of calories for women to maintain health and support fetal development during pregnancy.

Thalidomide

A drug that was once used to treat morning sickness in pregnant women but was found to cause severe birth defects when taken during pregnancy.

Birth Defects

Congenital disorders or abnormalities in structure, function, or metabolism present at birth that can lead to physical or mental disabilities.