If Two Investments Are Uncorrelated

question 37

Multiple Choice

If two investments are uncorrelated

• A) There is no benefit from diversification
• B) There is no benefit to hedging
• C) Diversification reduces risk without changing the expected payoff
• D) Diversification reduces both risk and the expected payoff

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Definitions:

Mantle-Derived Magmas

Magmas that originate from the partial melting of the Earth's mantle, often rich in magnesium and iron.

Continental Crust

The layer of igneous, sedimentary, and metamorphic rocks which form the continents and the shallow seas close to them, distinguished by its lower density compared to oceanic crust.

Decompression Melting

The process by which melt is generated within the Earth when a body of rock is held at approximately the same temperature but the pressure is reduced.

Mantle-Derived Magmas

Magmas that originate from melting processes within the Earth's mantle, often associated with tectonic activity and volcanic eruptions.