In theory, which of the following coefficients of correlation would eliminate risk in an investment portfolio?

1.00.0-1.0No theoretical coefficient exists for the elimination of risk in a portfolio context.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. The correlation coefficient measures the degree to which any two variables, e.g., two stocks in a portfolio, are related. Perfect negative correlation (–1.0) means that the two variables always move in the opposite direction. Given perfect negative correlation, risk would in theory be eliminated. In practice, the existence of market risk makes perfect correlation all but impossible.