Explain the Relationship Between Correlation, Diversification, and Risk Reduction

question 94

Essay

Explain the relationship between correlation, diversification, and risk reduction.

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Definitions:

Treasury Note

A type of U.S. government debt security with a fixed interest rate and maturity between two to ten years.

Eurodollar

U.S. dollar-denominated deposits at foreign banks or foreign branches of American banks, used widely in international lending and financing.

LIBOR

The London Interbank Offered Rate, a benchmark interest rate at which major global banks lend to one another.

Money Markets

Financial markets for short-term borrowing and lending, typically dealing with assets that mature in less than one year.