cfa 2012 sample exam v2 Q32 achieve, benefits, question

needhelp1700

the question says “as the as correlation between securities in a portfolio rises, the number of securies in the portfolio must be increased in order to achieve a certain level of diversification benefits” is wrong
But I think it is right, since we want the securies to have negative correlation or small correlation to achieve diversification, why the above is wrong?

soddy1979

You need to take note of the following where point (2) is where most people missed out.
1) Higher (lower) correlation between assets, the greater (lower) the diversification benefits
2) Higher (lower) correlation between assets, the lower (higher) the number of assets required to achieve a certain level of diversification. Meaning to say as your correlation between assets are lower, you need more assets to reach intended diversified portfolio.