A correlation matrix of the returns for securities A, B, and C is reported below:
| Security | A | B | C |
| A | 1.0 | ||
| B | 0.5 | 1.0 | |
| C | 0.0 | -0.5 | 1.0 |
Assuming that the expected return and the standard deviation of each security are the same, a portfolio consisting of an equal allocation of which two securities will be most effective for portfolio diversification? Securities:
C is correct. The negative correlation of-0.5 between investment instruments B and C is lowest and therefore is most effective for portfolio diversification.