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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?


Definitions:

Dual Innervation

The phenomenon where a body part, typically an organ, receives nerve fibers (and thus control) from both the sympathetic and parasympathetic nervous systems.

HVAC System

Heating, Ventilation, and Air Conditioning system that provides heating and cooling to residential and commercial buildings.

Remote Control

A device used to operate another device from a distance, commonly through infrared or wireless connectivity.

Norepinephrine

Norepinephrine is a neurotransmitter and hormone important in the body's fight or flight response, involved in increasing heart rate and blood pressure.

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