Even 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.

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Quizplus · Accepted Answer

If the correlation between the returns on two securities is +1.0, it means they move perfectly in sync with each other. Therefore, combining them in any proportion will not reduce the portfolio's risk compared to holding either security alone, as their returns are perfectly positively correlated, leading to no diversification benefit.

Even If the Correlation Between the Returns on Two Securities