CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

To effectively diversify a portfolio an investor wants stocks with ______ correlation coefficients; the effect will be to ______ the standard deviation of the portfolio.
A. positive; increase
B. negative; decrease
C. zero; increase
Explanation: Diversification benefits: risk reduction through a diversification of investments. Investments that are negatively correlated or that have low positive correlation provide the best diversification benefits. Such benefits may be particularly evident in an internationally diversified portfolio.

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