Brief discussion

Topic 1: How does correlation relate to risk reduction? What is the importance of negative or positive but low correlation of assets in terms of diversifying a portfolio?

Topic 2: Under the assumption of capital market theory, diversification is costless and investors are compensated for bearing unsystematic risk. Briefly explain your position.

Topic 3: Stock mutual fund BCD, with a beta of 0.90 had a return of 10% during which time the stock market had a return of 13%. The risk free return is 1.25%. Using the Jensen index, did this fund outperform the market on a risk-adjusted basis?