- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 2. Variance and Covariance of Returns
CFA Practice Question
Stocks A, B, and C each have the same expected return and standard deviation. Given the correlation coefficients between the stocks shown in the table below, which combination of these stocks will result in the lowest-risk portfolio?
A. Equal investment in stocks A and B
B. Equal investment in stocks B and C
C. Equal investment in stocks A and C
Explanation: If everything else is equal, the portfolio that has the lowest (or most negative) correlation will have the lowest risk.
User Contributed Comments 2
| User | Comment |
|---|---|
| mpapwa22 | Can some1 please explain further........... |
| Profache | The lowest risk portfolio is the one equally invested in a stocks with correlations of 1 and -1. |