For purposes of maximum portfolio diversification, which of the following would
ID: 2715989 • Letter: F
Question
For purposes of maximum portfolio diversification, which of the following would provide the greatest diversification?
A. Security A with a correlation coefficient of -0.0
B. Security B with a correlation coefficient of 0.0
C. Security C with a correlation coefficient of -0.50
D. Security D with a correlation coefficient of 0.50
A. Security A with a correlation coefficient of -0.0
B. Security B with a correlation coefficient of 0.0
C. Security C with a correlation coefficient of -0.50
D. Security D with a correlation coefficient of 0.50
Explanation / Answer
Based on the above we can conclude that correct answer is C
C. Security C with a correlation coefficient of -0.50
The above security will involve stocks such that when price of one goes up another will come down and vice versa. Hence this is the widely diversified portfolio.