if the correlation between the returns on two securities is +1.0, if the securities are combined in the correct proportions, the resulting 2-asset portfolio will have less risk than either security held alone.

Question

Quizplus · Accepted Answer

If the correlation is +1.0, the securities move perfectly together, and combining them will not reduce risk. The portfolio risk will be a weighted average of the individual risks, not less than either.

If the Correlation Between the Returns on Two Securities Is