Hi Aisha
Another name for the negative holding of an asset in the real world is 'short selling'. This is a term used to describe a speculator selling an asset they do not own (in the hope that the price drops and they can buy it back at a lower price).
If two assets are perfectly correlated, simultaneously buying one and selling the other would result in a gain in the asset you are long / short being exactly offset in a loss in the asset you are short / long.
This is known as a 'box'* position. In a world where there is no arbitrage this box position would need to earn the risk free rate.
If this wasn't the case an arbitraguer could earn a riskless profit by buying / selling the 'box' and selling / buying a bond.
Hope that helps.
*think of a box position as a zero coupon bond.
Last edited: Oct 19, 2019