In order to completely eliminate the risk (i.e., a portfolio standard deviation of zero) in a two-asset portfolio, the correlation coefficient between the securities must be ____.
A) less than +1.0
B) equal to 0.0
C) less than 0.0
D) equal to -1.0

Question

Quizplus · Accepted Answer

In order to completely eliminate risk in a two-asset portfolio, the correlation coefficient between the securities must be -1.0, indicating a perfect negative correlation. This means that the returns of one security are perfectly offset by the opposite returns of the other security, resulting in a portfolio standard deviation of zero.

In Order to Completely Eliminate the Risk (I