Which of the following statements about portfolio theory is FALSE?
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A. B. C. D.D
This statement misstates the principle of diversification and should read, "When the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will decrease the overall portfolio standard deviation." Anytime the correlation coefficient is less than one, there are benefits from diversification. The other choices are true.