Question
You wish to diversify your single minus security portfolio in a way that will maximize your reduction in risk. Which of the following securities should
You wish to diversify your single minus security portfolio in a way that will maximize your reduction in risk. Which of the following securities should you add to your portfolio?
A. Treasury bills that have a correlation coefficient of 0.0 with your current security
B. Alpha Company stock that has a correlation coefficient of minus 0.25 with your current security Your answer is correct.
C. Delta Company bonds that have a correlation coefficient of 0.36 with your current security
D. Beta Company stock that has a correlation coefficient of 0.50 with your current security
Why did we pick B?
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