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 would eliminate basis risk, as any loss in one would be exactly 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

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