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:

Open-Ended Questions

Questions that allow for a wide range of answers, encouraging free response and providing in-depth information.

Restating

The act of expressing the same idea or information using different words, often for clarity or emphasis.

Probing

The act of examining or exploring something with the intent to discover information, often by physical or technological means.

Verify

The act of confirming the accuracy, truth, or validity of something through examination or evidence.