Combining two assets having perfectly positively correlated returns will result in the creation of a portfolio with an overall risk that
A) decreases to a level below that of either asset.
B) increases to a level above that of either asset.
C) remains unchanged.
D) stabilizes to a level between the asset with the higher risk and the asset with the lower risk.

Question

Quizplus · Accepted Answer

When two assets have perfectly positively correlated returns, the risk of the portfolio is a weighted average of the individual risks, resulting in a risk level between the asset with the higher risk and the asset with the lower risk.

Combining Two Assets Having Perfectly Positively Correlated Returns Will Result