To Reduce Risk as Much as Possible, You Should Combine

question 6

Multiple Choice

To reduce risk as much as possible, you should combine assets which have which one of the following correlation relationships?

• A) strong positive
• B) slightly positive
• C) slightly negative
• D) strongly negative
• E) zero

---

Definitions:

Production Function

Function showing the highest output that a firm can produce for every specified combination of inputs.

Annual Output

The total production or quantity of goods and services produced by a company or economy in one year.

Economies of Scale

The cost advantage achieved by an increase in production, leading to a decrease in the average cost per unit through efficient allocation of resources and spreading of fixed costs.

Cost-output Elasticity

The ratio of the percentage change in cost relative to the percentage change in output, indicating how costs change with output levels.