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Sagot :
Answer:
Are uncorrelated with the rest of the portfolio
Explanation:
Portfolio diversification is the process of holding different asset and security classes in order to minimise the non systemic risk of the portfolio
Non systemic risk are risks that can be diversified away. they are also called company specific risk. Examples of this type of risk is a manager engaging in fraudulent activities.
The highest benefit of diversification is when the securities are uncorrelated
Correlation is a statistical measure used to measure the relationship that exists between two variables.
1. Positive correlation : it mean that the two variables move in the same direction. If one variable increases, the other variable also increases.
For example, there should be a positive correlation between quantity supplied and price
When there is a positive correlation, the graph of the variables is upward sloping
2. Negative correlation : it mean that the two variables move in different direction. If one variable increases, the other variable decreases.
For example, there should be a negative correlation between quantity demanded and price
When there is a negative correlation, the graph of the variables is downward sloping
3. Zero correlation : there is no relationship between the variables
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