The Greater the Negative Correlation Between Two (Or More) Securities

question 56

True/False

The greater the negative correlation between two (or more) securities, the lower the portfolio standard deviation (all else being equal).

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Definitions:

Financial System

The complex of institutions, markets, and instruments involved in the exchange of money and credit within an economy.

Federal Funds

Reserve balances that commercial banks hold at the Federal Reserve, which can be lent to other banks overnight to meet reserve requirements, influencing the federal funds rate.

Short-Term Basis

A period or timeframe that typically covers the near future, often less than a year, used for planning and decision making.

Banks

Financial institutions that accept deposits from the public, create credit, and provide loans, among other financial services.