The expected return from a portfolio made up equally of two assets that move perfectly opposite of each other would have a standard deviation equal to:
A) 1.0
B) -1.0
C) 0.0
D) 0.5

Question

Quizplus · Accepted Answer

When two assets move perfectly opposite of each other, the correlation coefficient between them is -1. This means that the covariance between the two assets will be negative and will cancel out in the portfolio, resulting in a standard deviation of 0. Therefore, the correct answer is C) 0.0.

The Expected Return from a Portfolio Made Up Equally of Two