ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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High Correlation, High Return
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High Correlation, Low Return
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Low Correlation, High Return
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Low Correlation, Low Return
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Detailed explanation-1: -If two pairs of assets offer the same return at the same risk, choosing the pair that is less correlated decreases the overall risk of the portfolio.
Detailed explanation-2: -Diversify Your Investments Once you have determined which asset classes suit your investment objectives, you can reduce overall portfolio risk further by diversifying your investments within the same asset class.
Detailed explanation-3: -The lower the correlations between two returns of assets in the portfolio, the lower the portfolio risk, and thus the higher the diversification benefits and vice versa. Note − Most of the benefits of diversification occur when the net correlation between two assets is-1.00.
Detailed explanation-4: -Stocks. Bonds. Alternative investments. Cash.
Detailed explanation-5: -Understand your Risk Tolerance: Keep Sufficient Liquidity in your Portfolio: The Asset Allocation Strategy: Diversify, Diversify and Diversify: Instead of Timing the Market, Focus on Time in the Market: Do your Due Diligence: Invest in Blue-Chip Stocks: Monitor Regularly: 22-Sept-2022