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A newly employed risk analyst at a well-known investment firm is examining the influence of financial correlation risk on the company's diverse investment portfolios. The firm administers a range of asset categories within these portfolios and participates in multiple hedging arrangements with different counterparties. Given this context, which of the following statements would the analyst find to be accurate?
A
The buyer of a CDs faces wrong-way risk when there is a positive default correlation between the reference asset and the CDS counterparty.
B
The risk-adjusted return of a portfolio typically increases when correlations of assets in the portfolio increase.
C
Dynamic correlation risk in a portfolio of pairs trades is most appropriately estimated using Gaussian copulas.
D
Correlation risk is highest during periods of relatively benign market movements when correlations are difficult to predict.