A Portfolio Consisting of Two Securities with Perfect Negative Correlation

question 11

Essay

A portfolio consisting of two securities with perfect negative correlation in the proper proportions can be shown to have a standard deviation of zero. What makes this riskless portfolio impossible to achieve in the real world?

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Definitions:

Master Budgets

Comprehensive financial planning documents that include both operational and financial budgets, providing a complete picture of organizational financial activities.

Quantities Purchased

The total number of units bought during a given period, often tracked for inventory or supply chain management.

Raw Materials

Basic materials that are used in the production process of goods, often transformed into finished products.

Fixed Overhead

Costs that do not vary with the level of production or sales, including rent, salaries, and insurance expenses.