The Less Correlated the Securities in a Portfolio

question 23

Multiple Choice

The less correlated the securities in a portfolio,

• A)the lower the portfolio risk.
• B)the higher the portfolio risk.
• C)the lower the unsystematic risk.
• D)the higher the diversifiable risk.

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Definitions:

Dummy Variables

Variables used in regression analysis to represent categorical data by assigning numerical values, typically 0 or 1, to represent the presence or absence of certain characteristics.

Categorical Variable

A variable that represents groups or categories, which are not numerical.

Regression Equation

An equation that describes the average relationship between a dependent variable and one or more independent variables.

Coefficient Of Determination

A metric quantifying the amount of variation in a dependent variable accounted for by one or more independent variables within a regression model.