Consider an investment opportunity set formed with two securities that are perfectly negatively correlated.The global minimum variance portfolio has a standard deviation that is always
A)greater than zero.
B)equal to zero.
C)equal to the sum of the securities' standard deviations.
D)equal to -1.
E)none of the above.

Question

Quizplus · Accepted Answer

The global minimum variance portfolio is formed by combining the two securities in such a way that the portfolio has the lowest possible variance. Since the two securities are perfectly negatively correlated, their returns move in opposite directions, and it is possible to construct a portfolio with zero variance by investing in both securities such that their returns cancel out each other. Thus, the standard deviation of the global minimum variance portfolio is always equal to zero.

Consider an Investment Opportunity Set Formed with Two Securities That