What Diversification, If Any, Is Achieved If Two Shares in a Portfolio

question 55

Essay

What diversification, if any, is achieved if two shares in a portfolio are perfectly positively correlated?

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Definitions:

Assets

Economic resources owned or controlled by a business or entity that are expected to provide future benefits.

Liabilities

Liabilities are financial obligations or debts that a company owes to others, including loans, accounts payable, mortgages, and other forms of owed money.

Installment Note

A debt instrument that requires regular payments of principal and interest over a set period.

Fiscal Year

A 12-month cycle utilized by corporations and governmental bodies for the purposes of financial statements and budget planning, not always coinciding with the January to December calendar year.