Asked by Shyasha Booker on May 12, 2024
Verified
Investing in two assets with a correlation coefficient of -.5 will reduce what kind of risk?
A) market risk
B) nondiversifiable risk
C) systematic risk
D) unique risk
Correlation Coefficient
The Correlation Coefficient is a statistical measure that calculates the strength and direction of a linear relationship between two variables.
Nondiversifiable Risk
A type of investment risk that is systematic and affects all companies or investments within an entire market.
Systematic Risk
The inherent risk associated with the entire market or market segment that cannot be eliminated through diversification.
- Familiarize oneself with the correlation principle and its influence on managing risk in portfolios.
- Illustrate the framework of systematic and unsystematic risk and their implications for investment strategies.
Verified Answer
Learning Objectives
- Familiarize oneself with the correlation principle and its influence on managing risk in portfolios.
- Illustrate the framework of systematic and unsystematic risk and their implications for investment strategies.
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