Which one of the following risks can be reduced by investing in project or acquiring other firms that have a negative correlation with the earnings of the firm?

Explanation:

• When two variables are negatively correlated, one variable decreases as the other increases, and vice versa. Negative correlations between two investments are used in risk management to diversify, or mitigate, the risk associated with a portfolio.
• Business risk refers to the basic viability of a business—the question of whether a company will be able to make sufficient sales and generate sufficient revenues to cover its operational expenses and turn a profit.
• While financial risk is concerned with the costs of financing, business risk is concerned with all the other expenses a business must cover to remain operational and functioning. These expenses include salaries, production costs, facility rent, office, and administrative expenses.
• Interest rate risk is the risk that an investment's value will change due to a change in the absolute level of interest rates, the spread between two rates, in the shape of the yield curve, or in any other interest rate relationship.
• This type of risk affects the value of bonds more directly than stocks and is a significant risk to all bondholders. As interest rates rise, bond prices in the secondary market fall and vice versa.