Which of the following statements about diversification is true? Select one: Diversification can help reduce a portfolio's risk, but can never reduce it below the level of its safest asset. If correlation equals +1, diversification does not reduce the risk of the portfolio to a level below the weighted average of the risks inside the portfolio. A correlation of zero means that the two stocks generally move opposite one another. Diversification, when done correctly, increases the expected return of a portfolio.
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With diversification it is possible Select one: • that the risk of the portfolio will be lower than the risk of the least risky investment in the portfolio. • that the return of the portfolio will be higher than the return of the most profitable investmen in the portfolio. • the coefficient of variance of the protfolio will be higher than the coefficient of variance of the highest risk investment. All of the above is true.
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