‘The zero risk investment will always involve positive investment in both assets if you plan to invest in two risky assets.’ Do you agree with this statement? Discuss.
Yes a zero risk investment will involve positive investment in
two risk assets. If correlation between assets is -1 then total
risk or standard Deviation can be 0. By taking proper weights in
risky asset 1 and risky asset we can minimize the risk and standard
deviation to 0. Weight of Asset 1/Weight of asset 2 =Standard
Deviation of 2/Standard Deviation of 1
Hence there is positive investment in both assets and their ratio
is equal to ratio of their standard deviations.
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