In a portfolio that contains two assets it is possible that there is no benefit to...
In a portfolio that contains two assets it is possible that there is no benefit to diversification from moving from a single asset to two assets. Why can this happen?Select one:
a. It happens if returns on the assets in the portfolio are perfectly positively correlated.
b. It happens if each of the assets is a common share.
c. It happens if returns on one asset are negatively correlated with returns on the other asset.
d. The statement is incorrect – moving from a single asset to two assets always provides a benefit.e. None of the above.
Homework Answers
Hi,
if the two assets are perfectly positively correlated then there is no benefit of diversification since assets return will move in same direction.
Hence option a is correct here.
Thanks
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