Why is the correlation coefficient an important statistical
measure for investors when they diversify their portfolio? Use an
example to explain your answer.
(b) In their “Pro’s Guide to Diversification”, the US investment
firm Fidelity state that “to build a diversified portfolio, you
should look for assets—stocks, bonds, cash, or others—whose returns
haven’t historically moved in the same direction, and to the same
degree, and, ideally, assets whose returns typically move in
opposite directions.” Explain the concept of diversification.
Critically...