Assume You Currently Hold One Type of Security and Decide

question 14

Multiple Choice

Assume you currently hold one type of security and decide to construct a portfolio.Which of the following would provide the greatest degree of risk reduction?

• A) Adding a security that has perfect negative correlation with the one you are holding
• B) Doubling the quantity of the security you already hold
• C) Adding a positively, but not perfectly, correlated security
• D) Adding a security that is uncorrelated with your current one
• E) Adding a security that has perfect positive correlation with the one you are holding

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Definitions:

Reorient

The process of helping or adapting oneself or another to become familiar with a new or changed situation, often used in medical and psychological contexts.

Electronic Safety Alert Device

A device designed to send alerts or calls for help in emergency scenarios.

Medical Problems

Issues or conditions that affect an individual's physical well-being and require professional medical attention.

False Consensus Effect

A cognitive bias whereby people tend to overestimate the extent to which their beliefs or opinions are typical of those of others.