Question: The returns on two assets have a correlation coefficient of+ 1. By combining these two assets in a portfolio, we can reduce the diversification

The returns on two assets have a correlation coefficient of+ 1. By combining these two assets in a portfolio,

The returns on two assets have a correlation coefficient of+ 1. By combining these two assets in a portfolio, we can reduce the diversification risk to: 10% The diversification risk cannot be reduced. 70% 50% 90%

Step by Step Solution

★★★★★

3.33 Rating (156 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

The correlation coefficient between two assets determines the ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Banking Questions!

Aflatoxin Exposure Surface antigen of the hepatitis B virus (HBsAg) Incidence HCC per 100,000 Attributable Risk (AR)/100,000 Rate Ratio (RR) Absent Negative 1.00 Positive 118.5 55.8 1.89 Present...

Two assets have a coefficient of correlation of .4. Asset A has a standard deviation of 20% and asset B has a standard deviation of 40%. Relative to holding a portfolio consisting of 100% of Asset B,...

The returns on two assets have a correlation coefficient of +1 . By combining these two assets in a portfolio, we can reduce the diversification risk to: 1096 The diversification risk cannot be...

Which is an example of diversification? Investing in different investment classes (for example, property and shares and cash) 2 Investing in companies from different industries investing in companies...

QUESTION 1 If the returns for two assets have a correlation coefficient of negative one, then there are no benefits of diversification by combining these assets in a two-asset portfolio . True False...

9. Which one of the following stocks is relatively more risky when held in as a single-stock portfolio? Stock ABC Standard Deviation 30% 40% Beta 1.2 1.6 XYZ a. XYZ because its beta is higher. b. XYZ...

1.The term excess return refers to ______________. a. returns earned illegally by means of insider trading b. the difference between the rate of return earned and the risk-free rate c. the difference...

(e) What is the risk of portfolios with returns of 3%, 9%, 15% and 20%? Plot this capital allocation line and the selected points in MATLAB. IULUI wie PO JUIW vurunce)? 5. Suppose the Lohrmanns can...

0 1 . The statement: "A portfolio is less than the sum of it's parts", means: Select one: a . Portfolio returns will always be lower than the returns on individual stocks. b . For reasons that are...

Why is Sustainability Important? How Does Sustainability Affect Business? In Ikea international (150words)

Based on information contained in charts in this chapter, specify an approximate height for a vertical flat plate and diameter of a horizontal cylinder for which the simplified equations of Table 7-2...

Which of the following refers to the duty a company has to be beneficial to its overall community while trying to avoid any harmful effects? Dilemmas in value Social responsibility Micro - macro...

An Izod impact test was performed on 20 specimens of PVC pipe. The sample mean is X = 1.25 and the sample standard deviation is x = 0.25. Find a 99% lower confidence bound on Izod impact strength.

The sugar content of the syrup in canned peaches is normally distributed. A random sample of n = 10 cans yields a sample standard deviation of s = 4.8 milligrams. Find a 95% two-sided confidence...

A chemical engineer is investigating how the amount of conversion of a product from a raw material (y) depends on reaction temperature (x1) and the reaction time (x2). He has developed the following...

A 12.0-kg object hangs in equilibrium from a string with a total length of L = 5.00 m and a linear mass density of μ = 0.001 00 kg/m. The string is wrapped around two light, frictionless pulleys...

If you can read the bottom row of your doctor's eye chart, your eye bas a resolving power of 1 arc minute, equal to 1/60 degree. If this resolving power is diffraction limited, to what effective...

Which of the following does NOT cultivate a sense of professional competence and positive attitude? D. Simulate experiences A. Attend presentations and discussions B. Self-reflection C. Beling...

What characteristics must the factors in a factor model possess?

a. Which fund's returns are best explained by the market's returns? Consider the five funds shown below: b. Which fund had the largest total risk? c. Which fund had the lowest market risk the...

Given the lower brokerage costs charged by discount brokers and deep discount brokers, why might an investor choose to use a full service broker?

A single force with x-component F x acts on a 2.0 kg object as it moves along the x-axis. A graph of F x versus t is shown in FIGURE P5.31. Draw an acceleration graph (ax versus t) for this object....

A steel beam, suspended by a single cable, is being lowered by a crane at a steadily decreasing speed? Describe a situation. For each, identify all forces acting on the object and draw a free-body...

Your physics textbook is sliding across the table? Describe a situation. For each, identify all forces acting on the object and draw a free-body diagram of the object.