Even if the correlation between the returns on two securities is +1.0,if the securities are combined in the correct proportions,the resulting two-asset portfolio will have less risk than either security held alone.

Question

Quizplus · Accepted Answer

If the correlation between the returns on two securities is +1.0, combining them in any proportion will not reduce risk because their returns move perfectly in tandem, meaning the portfolio's risk is essentially the average of the individual securities' risks, not less.

Even If the Correlation Between the Returns on Two Securities