Question
An investor forms a portfolio out of two risky assets. The correlation coefficient between these two assets is 0.9. Which of the following statements is
An investor forms a portfolio out of two risky assets. The correlation coefficient between these two assets is 0.9. Which of the following statements is true?
| There are no diversification benefits: the portfolio standard deviation is higher than the weighted average standard deviations of the two risky assets. | ||
| There are diversification benefits: the portfolio standard deviation is lower than the weighted average standard deviations of the two risky assets.
| ||
| There are no diversification benefits: the portfolio standard deviation is the same as the weighted average standard deviations of the two risky assets. | ||
| There are diversification benefits: the portfolio standard deviation is higher than the weighted average standard deviations of the two risky assets. |
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Entrepreneurial Finance
Authors: J. Chris Leach, Ronald W. Melicher
7th Edition
0357442040, 978-0357442043
