Combining Assets That Are Not Perfectly Positively Correlated with Each

question 90

True/False

Combining assets that are not perfectly positively correlated with each other can reduce the overall variability of returns.

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Definitions:

Parsimony

The principle of using the simplest or least complicated explanatory means necessary to adequately account for observed phenomena, often used in model selection.

Regression Model

A statistical technique for estimating the relationships among variables, often used for prediction and forecasting.

T-statistic

A type of statistic used in hypothesis testing, calculated from sample data to determine whether to reject the null hypothesis.

Correlation Coefficient

The correlation coefficient is a statistical measure that calculates the strength and direction of a linear relationship between two variables.