With Regard to the Benefits of Diversification, Nominate the Incorrect

question 8

Multiple Choice

With regard to the benefits of diversification, nominate the incorrect statement:

• A) The expected (mean) return for the portfolio lies between the highest return for all assets in the portfolio and the lowest return for all assets in the portfolio.
• B) The riskiness of a portfolio is simply a weighted average of the standard deviations of the individual shares in the portfolio.
• C) Portfolio risk can be reduced to close to zero when the returns of the shares contained in the portfolio are perfectly negatively correlated, that is they have a correlation coefficient of -1.0.
• D) A correlation coefficient of -1 would indicate that the two companies move counter-cyclically to each other.

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Definitions:

Epigenetics

The study of heritable changes in gene expression that do not involve changes to the underlying DNA sequence, influenced by environmental factors and lifestyle choices.

Frontal Lobe

The part of the human brain located at the front of each cerebral hemisphere, responsible for executive functions such as decision making, problem solving, control of purposeful behaviors, consciousness, and emotions.

Amygdala

A set of almond-shaped masses of neurons located deep within the brain's medial temporal lobe, involved in processing emotions such as fear, anger, and pleasure.

Hippocampus

a region of the brain that is associated with memory, emotions, and navigation.