You Are Comparing Five Separate Portfolios Comprised of Two Stocks

question 47

Multiple Choice

You are comparing five separate portfolios comprised of two stocks each that have varying characteristics.Which characteristic is most indicative of a diversified portfolio?

• A)The standard deviation of the portfolio equals the weighted average standard deviation of the two securities.
• B)The correlation between the two securities is equal to zero.
• C)The covariance of the two securities is equal to one.
• D)There is a highly positive covariance between the two securities.
• E)The correlation between the two securities is negative.

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Definitions:

Retinal Disparity

The slight difference in the visual images that reach each eye, which is crucial for depth perception.

Depth Perception

Depth Perception is the visual ability to perceive the world in three dimensions and to judge the distance of objects accurately.

Continuity

The continuous and steady presence or functioning of something throughout a duration of time.

Perceptual Constancy

Perceiving objects as unchanging (having consistent color, brightness, shape, and size) even as illumination and retinal images change.