n NISM Certifications
XXI NISM Series XXI-A
Medium

How can a portfolio be constructed with a risk of '0'? A. A portfolio with a risk of '0' can be constructed if there are only two securities in the portfolio, B. A portfolio with a risk of '0' can be constructed when the returns of the two securities are perfectly negatively correlated

Practice question from NISM XXI A for PMS - Mock Test 4 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Only A

  2. B

    Only B

  3. Both A and B

    Correct answer

  4. D

    Neither A nor B

Why this is the answer

Perfect negative correlation (-1) between two securities allows their combined volatility to offset entirely, creating a risk-free portfolio.

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