Portfolio Management Q59
0. A correlation matrix of the returns for securities A, B, and C is reported below:
| Security | A | B | C |
| A. | 1 | ||
| B. | -1 | 1 | |
| C. | 0.5 | -0.5 | 1 |
Assuming that the expected return and the standard deviation of each security are the same, a portfolio consisting of an equal allocation of which two securities will be most effective for portfolio diversification?
Securities:
Securities:
- Option : A
- Explanation : The negative correlation of –1.0 between investment instruments A and B is lowest and therefore is most effective for portfolio diversification.
