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Author Question: Which of the following securities could NOT have any benefits for diversification with your ... (Read 71 times)

karen

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on: Jul 10, 2018
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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AaaA

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Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: D

Answer to Question 2

Answer: B
Explanation: B) Negative correlation means that two different asset returns move in different directions over time. Thus one can offset the bad performance of the other.


karen

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Reply 2 on: Jul 10, 2018
Thanks for the timely response, appreciate it

elyse44

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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