Question

Perfectly negatively correlated returns are combined in a portfolio, then some combination of those two assets will ________. a. have no risk at all b. have a lower return than either asset does on its own c. have more risk than either asset does on its own d. have a higher return than either asset does on its own

Answer 1

Answer: Option A

Explanation: The correlation between two stocks affects their risk factor and not their returns. Correlation states the statistical dependence between two units.

Thus, if two units have perfect negative correlation than we can say that if a factor decrease the return of one unit then it will proportionately increase that of other.

Hence, from the above we can conclude that right option is A.