In a Two-Asset Portfolio,Stock a and Stock B Have a Measured

question 55

Multiple Choice

In a two-asset portfolio,Stock A and Stock B have a measured correlationship of r = -.80.Which of the following best describes the impact on the portfolio of having "A" and "B" in the portfolio?

• A)A and B are perfectly positively correlated, which reduces diversification.
• B)A and B are negatively correlated, which improves diversification in the portfolio.
• C)A and B are negatively correlated, which reduces diversification in the portfolio.
• D)A and B are perfectly negatively correlated, which reduces diversification.

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Definitions:

Overhead Variances

Differences between the actual overhead costs incurred and the standard costs for the overheads that were budgeted for a period.

Controllable

Controllable usually refers to expenses or costs that can be managed or influenced by decisions made by a company or an individual.

Volume

Refers to the amount of an asset or security that changes hands over a set period of time, commonly used in financial markets to gauge trading activity and liquidity.

Material Variances

The difference between the actual cost of materials used in production and the standard cost of materials that should have been used.