The global minimum variance portfolio formed from two risky securities will be riskless when the correlation coefficient between the two securities is
A) 0.0.
B) 1.0.
C) 0.5.
D) −1.0.
E) any negative number.

Question

Quizplus · Accepted Answer

The global minimum variance portfolio formed from two risky securities will be riskless when the correlation coefficient between the two securities is -1.0. This is because a perfect negative correlation (-1.0) between the two securities means that their returns move exactly in opposite directions, allowing for the elimination of risk through diversification.

The Global Minimum Variance Portfolio Formed from Two Risky Securities