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(b) An investment manager finds that a certain group of securities has a positive correlation coefficient of 0.89 with the Kuala Lumpur Composite Index (KLCI).

(b) An investment manager finds that a certain group of securities has a positive correlation coefficient of 0.89 with the Kuala Lumpur Composite Index (KLCI). If the purpose is to replicate the KLCI, would it make sense to try to increase the correlation by adding more assets ? What are the advantages and disadvantages of doing so ?

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