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:

FIFO Method

"First in, first out" method; an inventory valuation technique where the costs of the earliest goods acquired are the first to be recognized in cost of goods sold.

Processing Cost

Expenses associated with the operations that convert raw materials into finished products, often used in manufacturing industries.

Equivalent Unit

A measure used in process costing that converts work done on incomplete units into the amount of work needed to complete a standard unit.

Ending Work

This term could refer to the final stages of a work process or project, but without more context, it is not clearly identifiable as a standard key term.