Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?
A)−1.0
B)−.5
C)0
D).5
E)1.0

Question

Quizplus · Accepted Answer

A correlation coefficient of -1.0 between two assets means they move perfectly inversely to each other. When combined in an equally weighted portfolio, this perfect negative correlation can offset each asset's volatility, potentially reducing the portfolio's standard deviation to zero, thus creating a minimum variance portfolio.

Which One of the Following Correlation Coefficients Must Apply to Two