1. Which of the following statements is incorrect about the benefits of diversification?

1. A correlation coefficient of 1 would indicate that the returns of two assets move positively with each other.
2. Portfolio risk can be reduced to close to zero when the returns of the shares contained in the portfolio are perfectly positively correlated, that is they have a correlation coefficient of 1.0.
3. Portfolio risk can be reduced to close to zero when the returns of the shares contained in the portfolio are perfectly negatively correlated, that is they have a correlation coefficient of 1.0.

d. A correlation coefficient of 1 would indicate that the returns of two assets move inversely from each other.