A portfolio of two negatively correlated assets has less risk than either of the individual assets.

Question

Quizplus · Accepted Answer

When two assets are negatively correlated, they tend to move in opposite directions. This means that when one asset's price is down, the other asset's price is up, and vice versa. By combining these two assets in a portfolio, the portfolio's returns become less volatile, resulting in less risk than either of the individual assets. Diversification through a negative correlation can reduce overall portfolio risk.

A Portfolio of Two Negatively Correlated Assets Has Less Risk