When the correlation between two assets is exactly $- 1$ ,which of the following statements is true?
A)The hedge ratio is positive.
B)The hedge ratio is zero.
C)The variance of the hedged position is maximized.
D)There is no basis risk in hedging.

Question

Quizplus · Accepted Answer

When the correlation between two assets is exactly -1, it means they move perfectly inversely to each other. This perfect negative correlation implies that hedging one asset with the other can eliminate all basis risk, as any loss in one would be perfectly offset by a gain in the other.

When the Correlation Between Two Assets Is Exactly −1- 1−1 ,Which of the Following Statements Is True? A)The Hedge Ratio

When the Correlation Between Two Assets Is Exactly $- 1$ ,Which of the Following Statements Is True?
A)The Hedge Ratio