Q.
1

Statement 1: When the two securities returns are perfectly positively correlated, the risk of their portfolio is just a weighted average of the individual risks of the securities. In such case, diversification does not provide risk reduction but only risk averaging.

Statement 2: Total risk of a portfolio of two securities can be completely eliminated when their returns are perfectly negatively correlated and their proportionate holdings in the portfolio are inversely related to the relative individual risks of the securities

 

  • A

    Statement I is correct, but II is incorrect

     

  • B

    Both statements I & II are correct

     

  • C

    Statement II is correct, but I is incorrect

     

  • D

    Both statements I & II are incorrect