Theoretically, What Is the Correlation Coefficient Between a Completely Diversified

question 44

Multiple Choice

Theoretically, what is the correlation coefficient between a completely diversified portfolio and the market portfolio?

• A) -1.0
• B) +1.0
• C) 0.0
• D) -0.5
• E) +0.5

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Definitions:

Standard Deviation

A statistical measure that quantifies the variation or dispersion of a set of data values.

Risk-averse

Refers to the preference of an individual or entity to avoid risk rather than facing it, often choosing options with more predictable and less risky outcomes.

Expected Income

The amount of money one anticipates earning over a certain period, factoring in various possible outcomes.

Expected Utility

A theory in economics that calculates the utility of an individual or entity based on the likelihood of different outcomes, combining both the value of outcomes and their probabilities.