combining two assets having perfectly negative correlated returns will result in the creation of a portfolio with an overall risk that______.
a. stabilizes to a level between the asset with the higher risk and the asset with the lower risk
b. remains unchanged
c. increases to a level above that of either asset
d. decreases to a level bellow that of either asset
Answer :
a. stabilizes to a level between the asset with the higher risk and the asset with the lower risk
Explanation
perfectly negatively correlated means two negatively correlated series that have a
correlation coefficient of -1.If two stocks are perfectly negatively correlated, the portfolio is perfectly diversified and risk-free
A portfolio is simply a collection of investments assembled to meet a common investmentgoal. An efficient portfolio is a portfolio offering the highest expected return for a givenlevel of risk or the lowest level of risk for a given level of expected return.
Combining negatively correlated assets can reduce risk more effectively
