The correct answer is: D. diversification
A portfolio which consists of perfectly positively correlated assets will have no effect of diversification. This is because diversification is the process of reducing risk by investing in a variety of assets that are not perfectly correlated. When assets are perfectly correlated, they move in the same direction at the same time. This means that if one asset goes up in value, the other asset will also go up in value. This does not provide any risk reduction, as the value of the portfolio will always move in the same direction.
A portfolio which consists of assets that are not perfectly correlated will have a lower risk than a portfolio which consists of assets that are perfectly correlated. This is because the value of the portfolio will not always move in the same direction. If one asset goes down in value, the other asset may go up in value, which will offset the loss. This will reduce the overall risk of the portfolio.
In conclusion, the correct answer is: D. diversification. A portfolio which consists of perfectly positively correlated assets will have no effect of diversification.