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Under what circumstance is the risk of the portfolio not lower than the weighted average of...

Under what circumstance is the risk of the portfolio not lower than the weighted average of the risk of the individual securities in the portfolio? Explain your answer.
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Answer #1

The risk of the portfolio is not lower than the weighted average of the risk of the individual securities in the portfolio when the correlation between the assets is equal to 1.

Considering two asset portfolio, we know, the formula of risk of portfolio (standard deviation) is:

Where, weight of asset 1 in portfolio

risk (standard deviation) of asset 1

correlation coefficient between asset 1 and asset 2.

Hence, when correlation coefficient =1,

Which is the weighted average of the risk of the 2 assets.

Please do rate me and mention doubts in the comments section.

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