4.131 Perfectly negatively correlated investments.
CASE 4.3 Consider the following quote from an online site providing investment guidance: “Perfectly negatively correlated investments would provide 100% diversification, as they would form a portfolio with zero variance, which translates to zero risk.” Consider a portfolio based on two investments ( and ) with standard deviations of and . In line with the quote, assume that the two investments are perfectly negatively correlated .
4.131
(a) 2.2, no. (b) 1, no. (c) 0, yes. (d) No, “Perfectly negatively correlated investments with equal variance and equal mix….”