Which of the following correlation coefficients would generate the most benefit in terms of risk reduction for a 2-asset portfolio that consists of 40% in Asset A and 60% in Asset B?

Question

Mathematics

Mckenzie Walsh

20 December, 14:32

Which of the following correlation coefficients would generate the most benefit in terms of risk reduction for a 2-asset portfolio that consists of 40% in Asset A and 60% in Asset B?

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Answers (1)

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Tori Barrera · Answer 1

Asset B generate most benefit.

Step-by-step explanation:

Correlation shows the strength of relation between two variables.

Greater the correlation coefficient greater the strength between two variables.

Since here It is given that Correlation Coefficient between risk reduction and Asset B is higher (i. e. 60%) than the Correlation Coefficient between risk reduction and Asset A (i. e. 40%).

Thus, Asset B generate most benefit.