If securities returns are uncorrelated, diversification will not reduce risk. true or false, explain
If securities returns are uncorrelated, diversification will not reduce risk.
true or false, explain
Homework Answers
The question means that if securities in which you are investing are not related and gives same returns, then even if you diversify your investment it will not reduce risk.
If two pairs of assets offer the same return at the same risk, choosing the pair that is less correlated decreases the overall risk of the portfolio.
The mix (Diversification) will also return a healthy average compared to any single group of collectables on its own.
Hence, False.
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If securities returns are uncorrelated, diversification will not
reduce risk.
true or false, explain
Question 9 Other things equal, diversification is most effective when Securities' returns are positively correlated. Securities'...
Question 9 Other things equal, diversification is most effective when Securities' returns are positively correlated. Securities' returns are high. Both sicurities' returns are positively correlated and securities' returns are high. You hold equal proportions of each security in a portfolio. Securities returns are uncorrelated.
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Statement True False Because of the effects of diversification, the portfolio's risk is likely to be...
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Question 4 How can you reduce risk through diversification? by combining investments whose returns do not...
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Explain the difference between unique risk and market risk Explain what diversification is; can you diversify...
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Question 9 Other things equal, diversification is most effective when Securities' returns are positively correlated. Securities' returns are high. Both sicurities' returns are positively correlated and securities' returns are high. You hold equal proportions of each security in a portfolio. Securities returns are uncorrelated.
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with...
Question 4 How can you reduce risk through diversification? by combining investments whose returns do not move together and thus are not perfectly positively correlated by combining investments whose returns move together and thus are perfectly positively correlated by investing all the money in a single asset whose returns are abnormally high None of the above
QUESTION 25 You invest the same dollar amount in 5 different securities. All else equal diversification produces the greatest benefits of the correlation coefficients for the returns of the 5 securities are close to 1. True False
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