If Two Investments Are Perfectly Positively Correlated

question 29

Multiple Choice

If two investments are perfectly positively correlated

• A) There is no benefit from diversification
• B) Bets are perfectly hedged and risks are canceled out
• C) Diversification reduces risk without changing the expected payoff
• D) Diversification reduces both risk and the expected payoff

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Definitions:

Situational Constraints

Factors in the environment that restrict, guide, or dictate behavior, often influencing the outcome of behavior in specific settings.

Personal Dispositions

are inherent qualities of individual personality that influence behavior and attitudes.

Political Liberals

Individuals who generally support progressive reforms, individual rights, and a greater role for government in society for the sake of equality.

Role Playing

The act of imitating the character and behavior of someone who is different from oneself, often as a learning tool or in therapy.