If a Portfolio Is Constructed with Only Two Assets, of Equal

question 27

Multiple Choice

If a portfolio is constructed with only two assets, of equal weights, and the correlation coefficient between the two assets is exactly 1.0, which of the following is true?

• A) The portfolio risk reduction is maximized.
• B) The return of the two assets over time are seen to follow different cycles or paths.
• C) Risk is not reduced significantly because of the positive correlation.
• D) None of the above are true.