22. Which of the following statements about the riskiness of a two-investment po

Question

22. Which of the following statements about the riskiness of a two-investment portfolio is most correct?

a. If the returns are perfectly positively correlated, all risk can be eliminated.

b. If the returns are perfectly negatively correlated, no risk can be eliminated.

c. If the returns have a correlation coefficient of +0.7, some, but not all, risk can be eliminated.

d. If the returns have a correlation coefficient of –0.4, all risk can be eliminated.

e. If the returns are uncorrelated (correlation coefficient of 0.0), all risk can be eliminated

Explanation / Answer

c. If the returns have a correlation coefficient of +0.7, some, but not all, risk can be eliminated.

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