If the returns on two assets are negatively correlated, then a portfolio that contains some of each will have less variance in its return per dollar invested than either asset has by itself.

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Quizplus · Accepted Answer

This statement is true. When two assets have negative correlation, they tend to move in opposite directions. Therefore, combining them in a portfolio can help reduce the overall variance of the portfolio's return. This is because when one asset is doing poorly, the other may be doing well, which helps balance out the overall return of the portfolio.

If the Returns on Two Assets Are Negatively Correlated, Then