Question

Risk of a portfolio depends on correlation on return.
a. True
b. False

Answer 1

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➡️ True ✔️

Answer 2

‘Risk of a portfolio depends on correlation on return’ is a TRUE statement.

Explanation:

• The ‘risk and return’ for a portfolio depend on the returns expected from the assets and variances and also on the correlation of return of the assets.  

• The correlation factor is what steers the total theory of diversification of the portfolios.  

• Correlation is used for measuring the ‘relationship’ between the two variables.  

• There should always be a ‘positive correlation’ between the ‘amount of risk’ taken and the potential expected from the return.  

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