The Ability of Diversification to Eliminate Much of the Risk

question 36

True/False

The ability of diversification to eliminate much of the risk from the asset side of the balance sheet of an FI is the result of choosing assets that are less than perfectly positively correlated.

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Definitions:

Confidence

The degree of certainty or trust in a statistical or experimental result, often expressed as a confidence interval or level.

Test Statistic

A calculated value from sample data used to determine whether to reject the null hypothesis within the framework of a statistical test.

Obtained Value

The actual value calculated from a statistical test's data, used to interpret the result by comparison with critical values of the distribution.

Statistical Procedure

A sequence of operations performed on data to analyze relationships, test hypotheses, and estimate probabilities.