An agent says the best strategy to diversify a portfolio is to invest in assets with...
An agent says the best strategy to diversify a portfolio is to invest in assets with positive correlation, given that in good times the investor will make big profits. True or False and explain
Homework Answers
The given statement is FALSE
Diversification occurs when risk is reduced and lower the correlation coefficient, lower will be the risk
If all funds are invested in assets with positive correlation, investor will make big in good times but lose big in bad times
Hence, Negative correlation is necessary for diversification
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