A portfolio of two negatively correlated assets may have less risk than either of the individual assets.

Question

Quizplus · Accepted Answer

When two assets have a negative correlation, they tend to move in opposite directions. This means that when one asset is performing poorly, the other asset is likely to be performing well, and vice versa. By holding a portfolio of two negatively correlated assets, the overall risk of the portfolio can be reduced because losses in one asset may be offset by gains in the other asset, thereby reducing the overall volatility of the portfolio.

A Portfolio of Two Negatively Correlated Assets May Have Less