Consider an investment opportunity set formed with two securities that are perfectly negatively correlated.The global minimum variance portfolio has a standard deviation that is always
A) greater than zero.
B) equal to zero.
C) equal to the sum of the securities' standard deviations.
D) equal to -1.
E) none of these.

Question

Quizplus · Accepted Answer

The global minimum variance portfolio is a combination of the two securities in which the standard deviation is minimized, and since the securities are perfectly negatively correlated, the portfolio standard deviation is equal to zero (i.e., there is no risk in combining these securities). Therefore, the correct answer is B, equal to zero.

Consider an Investment Opportunity Set Formed with Two Securities That