The diversification effect of a portfolio of two stocks: . increases as the stan
ID: 2613853 • Letter: T
Question
The diversification effect of a portfolio of two stocks:
.
increases as the standard deviaion between the stocks declines.
increases as the correlation between the stocks rises.
increases as the standard deviation between the stocks increases.
increases as the correlation between the stocks declines.
None of the above.
A.increases as the standard deviaion between the stocks declines.
B.increases as the correlation between the stocks rises.
C.increases as the standard deviation between the stocks increases.
D.increases as the correlation between the stocks declines.
E.None of the above.
Explanation / Answer
Option D.
Increases as the correlation between the stocks declines.
the Diversification is widely used to choose which very less correlated to each other so that when market of one stock comes down the other stock doesn't comes down and maintains the portfolio
Increases as the correlation between the stocks declines.
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