Question

Mark all the correct statements.

		When two assets are not correlated, it is possible to create a portfolio with them that will have zero standard deviation.
		When two assets' correlation is +1, the minimum variance portfolio (allowing no short selling) consists of 100% from the asset with the lesser variance.
		Even very risk averse investors prefer the Optimum Risky Portfolio to the Minimum Variance Portfolio.
		Given a 50-50% investment into two predetermined risky assets, the lower their correlation, the lower the Sharpe ratio of their portfolio.

Answer 1

Correct statements are as follows-

B)When two assets' correlation is +1, the minimum variance portfolio consists of 100% from the asset with the lesser variance. This is a reflection of the perfectly positive correlation and this will be offering no diversification.

C)even the risk averse investor will prefer the optimum risky portfolio because these portfolios are based on the principle of minimization of disc and maximization of the determinant they will prefer this portfolio against minimum variance portfolio.