If Two Stocks Are Perfectly Negatively Correlated, a Portfolio with Equal

question 62

True/False

If two stocks are perfectly negatively correlated, a portfolio with equal weighting in each stock will always have a volatility (standard deviation) of 0.

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Definitions:

Utility Maximization

A principle in economics that suggests individuals and firms seek to allocate their resources in a way that maximizes their satisfaction or utility.

Diminishing Marginal Utility

A principle stating that as a person consumes more units of a particular good or service, the satisfaction (utility) gained from consuming each additional unit decreases.

Income Effect

Variations in income for either a person or the economy as a whole, and how these variations influence the demand for specific goods or services.

Substitution Effect

A shift in consumer preferences resulting from alterations in the comparative costs of different products, causing buyers to switch from one product to another.