Which of the following statements about the bundling risks into portfolios is not correct?

Which of the following statements about the bundling risks into portfolios is not correct?


A) Due to the randomness of business activity bundling risks into portfolios will be reducing risk.

B) Natural diversification occurs across uncorrelated risks that are bundled into a portfolio.

C) Bundling risk into a portfolio only reduces risk if uncorrelated and/or negatively correlated exposures are included.

D) The best reduction in risk is accomplished by including negatively correlated exposures into a portfolio.


Answer: C

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