For a Two-Stock Portfolio, the Maximum Reduction in Risk Occurs

question 33

Multiple Choice

For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks equals

• A)+1.0.
• B)-0.5.
• C)-1.0.
• D)0.0.

---

Definitions:

Debits

Entries on the left-hand side of an account that represent the increase in assets or expenses or a decrease in liabilities, equity, or income.

Credits

Accounting entries that increase liabilities or equity accounts, or decrease asset or expense accounts, recorded on the right side of a ledger.

Accounts

Records that summarize and classify all financial transactions of a business, including assets, liabilities, equity, revenue, and expenses.

Debt Ratio

A ratio indicating a company’s leverage by comparing its total debt to its total assets.