In General, the Lower (Less Positive and More Negative) the Correlation

question 46

Multiple Choice

In general, the lower (less positive and more negative) the correlation between asset returns,

• A) the less the potential diversification of risk.
• B) the greater the potential diversification of risk.
• C) the lower the potential profit.
• D) the less the assets have to be monitored.

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Definitions:

Loanable Funds

Financial assets available for borrowing, which play a crucial role in setting interest rates in economics.

Shortage

A scenario in which the need for a product or service surpasses the available supply within a market.

Payday Lending

A type of short-term borrowing where lenders offer high-interest loans based on the borrower's income and credit profile.

Interest Rates

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, or the rate at which interest is paid by bond issuers on the bond’s face value.