Respuesta :
The benefits of diversification are greatest when the correlation coefficient is -0.9.
Which correlation coefficient promotes diversification the most?
As a result, the better the diversification, the more uncorrelated two assets are and the closer the correlation coefficient is to 0. Therefore, compared to one of 0.42, a correlation coefficient of 0.85 shows a significantly larger correlation between two assets.
What transpires in the case of perfect correlation and diversification?
If two items are perfectly connected, we can't anticipate their movements to vary; instead, they would move in unison and in lockstep (and even if we averaged thousands of these perfectly correlated variables, the variance would not decrease). Lowering your risk involves distributing your funds among and within several asset classes, such as stocks, bonds, and cash.
To know more about diversification benefits visit:-
https://brainly.com/question/18882473
#SPJ4
