If two assets having perfectly negatively correlated returns are combined in a portfolio,then some combination of those two assets will ________.
A)have more risk than either asset does on its own
B)have no risk at all
C)have a higher return than either asset does on its own
D)have a lower return than either asset does on its own

Question

Quizplus · Accepted Answer

Perfectly negatively correlated returns mean that when one asset goes up in value, the other asset goes down by the same amount. Therefore, by combining the two assets in a portfolio, their returns cancel each other out, resulting in a portfolio with no risk at all. This is known as a "riskless" portfolio.

If Two Assets Having Perfectly Negatively Correlated Returns Are Combined