Question 293 covariance, correlation, portfolio risk
All things remaining equal, the higher the correlation of returns between two stocks:
(a) The more diversification is possible when those stocks are combined in a portfolio.
(b) The lower the variance of returns of an equally-weighted portfolio of those stocks.
(c) The lower the volatility of returns of an equal-weighted portfolio of those stocks.
(d) The higher the covariance between those stocks' returns.
(e) The more likely that when one stock has a positive return, the other has a negative return.
Copyright © 2014 Keith Woodward