A Portfolio Manager Is Considering Adding Another Security to His

question 106

Multiple Choice

A portfolio manager is considering adding another security to his portfolio. The correlations of the five alternatives available are listed below. Which security would enable the highest level of risk diversification?

• A) 0.0
• B) 0.25
• C) - 0.25
• D) - 0.75
• E) 1.0

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Definitions:

Oedipus Complex

A Freudian concept indicating a child’s unconscious desire for the opposite-sex parent and jealousy toward the same-sex parent.

Erikson

Refer to Erik H. Erikson, a German-American developmental psychologist known for his theory on the psychosocial development of humans.

Trust or Mistrust

A fundamental psychological choice or belief, especially in childhood, that shapes an individual's ability to engage and believe in the reliability of others.

Coping

The process of managing external and internal demands that are perceived as taxing or exceeding the resources of the person.