In which of the following situations would you get the largest reduction in risk by spreading your investment across two stocks?

a. The two shares are perfectly correlated.

b. There is no correlation.

c. There is modest negative correlation.

d. There is perfect negative correlation.

Visit us at www.mhhe.com/bma Visit us at www.mhhe.com/bma Visit us at www.mhhe.com/bma Chapter 7 Introduction to Risk and Return 181 AppendixLO1