Bissoy.com
Doctors Medicines MCQs Q&A

Choose the correct code for the following statements being correct or incorrect. Statement I : 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 II : Total risk of a portfolio of two risk 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. 

Choose the correct code for the following statements being correct or incorrect. Statement I : 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 II : Total risk of a portfolio of two risk 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.  Correct Answer Both the statement I and II are correct.

Statement I: 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 a case, diversification does not provide risk reduction but only risk averaging.

Explanation:

  1. A perfectly positive correlation means that 100% of the time, the variables in question move together by the exact same percentage and direction. 
  2. When security returns are perfectly positively correlated, the correlation coefficient between the two securities will be +1.
  3. The returns of the two securities will move up or down together, then the portfolio happens to be undiversified which does not provide risk reduction but only risk averaging. Thus, the statement I is correct.

Statement II: Total risk of a portfolio of two risk 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. 

Explanation: 

  1. Other things equal, the smaller the correlation between two assets, the smaller will be the risk of a portfolio of long positions in the two assets. 
  2. When security returns are perfectly negatively correlated, the correlation coefficient between the two securities will be -1.
  3. The two returns will always move in exactly opposite directions making the portfolio diversified which helps to eliminate risk. Thus, statement II is correct.

Thus, option 1 is the correct answer.

Related Questions

Which of the following statements is/are true/false? A. An ion is a charged particle and can be negatively or positively charged. A negatively charged ion is called an anion and a positively charged ion, a cation B. An ion is a charged particle and can be negative or positively charged. A negatively charged ion is called a cation. And a positively charged ion, an anion.
Read the following information carefully and answer the questions that follow: Seven persons Tina, Vini, Yasir, Rishi, Sanya, Pankaj and Urmila live on the separate floors of a 7- floor building. Ground floor is number one; second floor is number two and so on. Each of them goes to a city viz. Paris, Istanbul, Shanghai, Durban, London, Madrid and Dubai but not necessarily in the same order. Only three people live above the floor on which Sanya lives. Only one person lives between Sanya and the one who goes to Paris. Vini lives just below the person who goes to Madrid. Only three people live between the one who goes to Paris and London. The person who goes to Madrid lives on an even numbered floor. Urmila lives just above Rishi. Urmila does not go to London. Only two persons live between Pankaj and the one who goes to Durban. Pankaj lives above the person who goes to Durban. Yasir does not go to Istanbul. Tina does not live just above or just below Sanya. The one who goes to Shanghai does not live just above or just below Pankaj. Who among the following lives on floornumber 7?
There is a hint in this question and a statement is given later. Carefully read the excerpts provided and determine the statement based on that episode. The current Australian team has lost three of their last five Test series. They lost their last two Test series, one of which was against Pakistan, which is not considered to be a strong team now. Australia's two best batsman, Steve Smith and David Warner are currently suspended and their absence has weakened the Australian team. There is a lot of dissatisfaction and introspection about how their national team plays in Australia, how they show aggression on the field, how they do not show respect to the team against them, and neglecting the media at the most, and focusing only on winning only, the discussion on the future of the game is ongoing. There are. Australian cricket never reached such a low level. This is the best opportunity to knock them into their own house. In other words, if this India could not beat Australia in Australia in this series, then it would prove that the campaign around this team is only the same: the propaganda. Statement: India has a good chance of defeating Australia. Choose the right one from the next option A - The statement is completely true. B - statement is most true. There is no definitive definition based on C-statement. D-statement is completely false.
There is a hint in this question and a statement is given later. Carefully read the excerpts provided and determine the statement based on that episode. The current Australian team has lost three of their last five Test series. They lost their last two Test series, one of which was against Pakistan, which is not considered to be a strong team now. Australia's two best batsman, Steve Smith and David Warner are currently suspended and their absence has weakened the Australian team. There is a lot of dissatisfaction and introspection about how their national team plays in Australia, how they show aggression on the field, how they do not show respect to the team against them, and neglecting the media at the most, and focusing only on winning only, the discussion on the future of the game is ongoing. There are. Australian cricket never reached such a low level. This is the best opportunity to knock them into their own house. In other words, if this India could not beat Australia in Australia in this series, then it would prove that the campaign around this team is only the same: the propaganda. Legislation: The current Australian team won two of the last five Tests they played. Choose the right one from the next option A - The statement is completely true. B - Statement is most true. C - There is no definitive definition based on C-statement. D- Statement is completely false.
In this question, a passage and a related statement have been given. Read the passage carefully and assess the statement based on it. Using knives and screws, two Russian astronauts on Tuesday took a sample of substance around a mysterious cavity of the spacecraft called the Soyuz, which was placed in the International Space Station, a Moscow official suggested that it was a break - It can also be done. In August, two months after the last visit of the vehicle, the air leak was detected in the Soyuz spacecraft due to the 2 mm air in the ISS. Roskosmos, an astronomical institute, says that cutting off the insulation on the hole and sampling the material around it and the purpose of putting a new insulation on it is to find out that this small but dangerous hole has been done on earth or Is in space. The chief of Roskosmos has said that the error of manufacturing has not been found in the investigation. Experienced astronauts had to struggle but they managed their mission. Before the spacewalk, astronauts were able to inspect the hole just from within the spacecraft. The biggest difficulty was that in the Soyuz spacecraft, the ISS was not designed to improve during adverse weather space, and no railing was also made to catch the space passengers outside the vehicle. Statement: In the Soyuz spacecraft, the air leak due to the presence of the leak was detected after two months of the last visit. Select the appropriate from the given options A - Statement is completely true B - The statement is possibly true C - the statement can not be determined D - Statement is completely false
In this question, a passage and a related statement have been given. Read the passage carefully and assess the statement based on it. Using knives and screws, two Russian astronauts on Tuesday took a sample of substance around a mysterious cavity of the spacecraft called the Soyuz, which was placed in the International Space Station, a Moscow official suggested that it was a break - It can also be done. In August, two months after the last visit of the vehicle, the air leak was detected in the Soyuz spacecraft due to the 2 mm air in the ISS. Roskosmos, an astronomical institute, says that cutting off the insulation on the hole and sampling the material around it and the purpose of putting a new insulation on it is to find out that this small but dangerous hole has been done on earth or Is in space. The chief of Roskosmos has said that the error of manufacturing has not been found in the investigation. Experienced astronauts had to struggle but they managed their mission. Before the spacewalk, astronauts were able to inspect the hole just from within the spacecraft. The biggest difficulty was that in the Soyuz spacecraft, the ISS was not designed to improve during adverse weather space, and no railing was also made to catch the space passengers outside the vehicle. Statement: The mysterious hole in the So yuz spacecraft was due to the error of manufacturing. Select the appropriate from the given options A - Statement is completely true B - The statement is possibly true C - the statement can not be determined D - Statement is completely false
Read the passage carefully and choose the best answer to each question out of the four alternatives andclick the button corresponding to it.
There is a time in every man's education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better, forworse, as his portion; that though the wide universe is full of good, no kernel of nourishing corn can come to him but through his toil bestowed on that plot of groundwhich is given to him to till. The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he hastried. Not for nothing one face, one character, one fact, makes much impression on him, and another none. This sculpture in the memory is not without pre-established harmony. The eye was placed where one ray should fall, that it might testify of that particular ray. We but half express ourselves, and are ashamed ofthat divine idea which each of us represents. It may be safely trusted as proportionate and of good issues, so it be faithfully imparted, but God will not have his workmade manifest by cowards. A man is relieved and gay when he has put his heart into his work and has done his best; but what he has said or done otherwise, shallgive him no peace. It is a deliverance which does not deliver. In the attempt his genius deserts him; no muse befriends; no invention, no hope. What is that which only the person himself knows and must act in order to discover it?
Read the passage carefully and choose the best answer to each question out of the four alternatives andclick the button corresponding to it.
There is a time in every man's education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better, forworse, as his portion; that though the wide universe is full of good, no kernel of nourishing corn can come to him but through his toil bestowed on that plot of groundwhich is given to him to till. The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he hastried. Not for nothing one face, one character, one fact, makes much impression on him, and another none. This sculpture in the memory is not without pre-established harmony. The eye was placed where one ray should fall, that it might testify of that particular ray. We but half express ourselves, and are ashamed ofthat divine idea which each of us represents. It may be safely trusted as proportionate and of good issues, so it be faithfully imparted, but God will not have his workmade manifest by cowards. A man is relieved and gay when he has put his heart into his work and has done his best; but what he has said or done otherwise, shallgive him no peace. It is a deliverance which does not deliver. In the attempt his genius deserts him; no muse befriends; no invention, no hope. Which of the following does the author appear to highlight in this essay?
Read the passage carefully and choose the best answer to each question out of the four alternatives andclick the button corresponding to it.
There is a time in every man's education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better, forworse, as his portion; that though the wide universe is full of good, no kernel of nourishing corn can come to him but through his toil bestowed on that plot of groundwhich is given to him to till. The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he hastried. Not for nothing one face, one character, one fact, makes much impression on him, and another none. This sculpture in the memory is not without pre-established harmony. The eye was placed where one ray should fall, that it might testify of that particular ray. We but half express ourselves, and are ashamed ofthat divine idea which each of us represents. It may be safely trusted as proportionate and of good issues, so it be faithfully imparted, but God will not have his workmade manifest by cowards. A man is relieved and gay when he has put his heart into his work and has done his best; but what he has said or done otherwise, shallgive him no peace. It is a deliverance which does not deliver. In the attempt his genius deserts him; no muse befriends; no invention, no hope. What does the word 'Manifest' mean?
Read the passage carefully and choose the best answer to each question out of the four alternatives andclick the button corresponding to it.
There is a time in every man's education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better, forworse, as his portion; that though the wide universe is full of good, no kernel of nourishing corn can come to him but through his toil bestowed on that plot of groundwhich is given to him to till. The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he hastried. Not for nothing one face, one character, one fact, makes much impression on him, and another none. This sculpture in the memory is not without pre-established harmony. The eye was placed where one ray should fall, that it might testify of that particular ray. We but half express ourselves, and are ashamed ofthat divine idea which each of us represents. It may be safely trusted as proportionate and of good issues, so it be faithfully imparted, but God will not have his workmade manifest by cowards. A man is relieved and gay when he has put his heart into his work and has done his best; but what he has said or done otherwise, shallgive him no peace. It is a deliverance which does not deliver. In the attempt his genius deserts him; no muse befriends; no invention, no hope. According to the author, God is not looking for _____ to manifest his works.