When combining two securities into a portfolio risk reduction will be greatest when the two securities are?

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1250106

2026-03-26 08:25

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When combining two securities into a portfolio, risk reduction will be greatest when the two securities are negatively correlated. This means that when one security's price decreases, the other security's price tends to increase, providing a natural hedge against market fluctuations. Additionally, having low correlation between the securities can also help in reducing overall portfolio risk by diversifying the sources of returns.

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