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) equal to the sum of the securities' standard deviations
B) equal to -1
C) equal to 0
D) greater than 0

Question

Quizplus · Accepted Answer

The global minimum-variance portfolio is formed by combining securities in a way that minimizes the overall portfolio variance. Since the two securities are perfectly negatively correlated, their returns will move in opposite directions, resulting in a cancellation of variance. Therefore, the standard deviation of the global minimum-variance portfolio will be zero.

Consider an Investment Opportunity Set Formed with Two Securities That