Answer: D Strongly Negative
Step-by-step explanation:
To reduce, you should combine assets that have following correlation relationships:
1. Negative Correlation: This is when the two assets move in opposite directions. When one is up, the other is down, and vice versa. This can help to reduce risk as losses in one asset can be offset by gains in the other.
2. Low or No Correlation: When two assets have low or no correlation, their movements are not directly related. By combining assets that have low correlation, you can reduce overall portfolio risk.
3. Diversification: By diversifying your portfolio across different asset classes, sectors, and geographies, you can reduce the risk of any single asset significantly impacting your portfolio. This means that if one asset performs poorly, the overall impact on your portfolio will be minimized.
4. Combined Correlation: When combining assets, it's also important to consider overall correlation. A portfolio made up of assets with high correlations will not be well-diversified and will still be exposed to significant risk. Therefore, it's essential to ensure that your portfolio consists of assets with varying degrees of correlation to reduce overall risk.