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The reduction in variance (or risk) that arises through diversification in a portfolio of two stocks 1) decreases as the correlation between the stocks rises.

The reduction in variance (or risk) that arises through diversification in a portfolio of two stocks 1) decreases as the correlation between the stocks rises. 2) increases as the correlation between the stocks declines. 3) (Both statements are correct.) 4) (Not enough information.)

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