About concentrations and correlations, which one is correct?
A. Concentrations only affect expected loss instead of unexpected loss.
B. All else equal, the more portfolio is concentrated, the less risky the portfolio is.
C. When consider credit portfolio， we cannot make a decision solely based on one bond. We should take the correlations into considerationand usually pick the one which has high correlations.
D. Diversity effctively reduced the unexpected loss of a credit portfolio.
Answer:D
Concentrations only affect unexpected loss instead of expected loss. AII else equal, the more portfolio is concentrated, the more risky the portfolio is.