Which of the following is (are) false regarding the risk of a portfolio of two r

Question

Which of the following is (are) false regarding the risk of a portfolio of two risky securities A & B?:

a) The covariance of A & B equals the volatility A times volatility B times the correlation between A & B

b) If the correlation between A & B is -1, a risk free portfolio comprising A & B can be constructed that would have an expected return equal to the risk free rate.

c) The risk of a portfolio comprising A & B can be less than the risk of either A or B

d) If the correlation between A & B is +1, the volatility of the portfolio comprising A & B is simply the weighted average of the volatilities of A & B.

e) The higher the correlation between A & B, the greater the reduction in portfolio risk.

Explanation / Answer

option D is correct.

when both the stocks are having same risk characteristics and it carries +1 correlation

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