Financial Planner

Answer: C - There are three asset classes in financial planning. The classes are distributed among stocks, bonds, and cash and money market instruments. The correlation coefficient is the driving force of asset allocation. As the correlation coefficient decreases from +1, there is an increase in diversification. Diversification can increase the return of a portfolio while decreasing the risk. Note that the standard deviation of a portfolio is less than the weighted standard deviation of the individual stocks in the portfolio.