Which of the following securities could NOT have any benefits for diversification with your investment portfolio?
A) Treasury bills with a correlation coefficient of 0.0 with your portfolio
B) Alpha Company stock that has a correlation coefficient of -0.25 with your portfolio
C) Beta Company stock that has a correlation coefficient of 0.50 with your portfolio
D) All of these choices would reduce risk for your portfolio and therefore show at least some benefit to diversification.
Question 2
You wish to diversify your single-security portfolio in a way that will maximize your reduction in risk. Which of the following securities should you add to your portfolio?
A) Treasury bills that have a correlation coefficient of 0.0 with your current security
B) Alpha Company stock that has a correlation coefficient of -0.25 with your current security
C) Beta Company stock that has a correlation coefficient of 0.50 with your current security
D) Delta Company bonds that have a correlation coefficient of 0.36 with your current security
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