A
Aisha
Member
On page 14 of chapter 6 , it is written that if the correlation coefficient is 1, then there exists a risk free portfolio with V=0 for negative holding of SB and a positive holding of SA. Here EA=4% VA = 4%% and EB= 8% and VB=36%%
I do understand that if there is negative holding of SB ( having much higher variance) the variance of the portfolio would drop and Also it can be adjusted in a way such that the positive variance of SA ( arising from positive holding of SA) can be neutralized to a zero variance.
But I want to know, that in real world , what do we actually mean by negative holding and does it really help to achieve risk free portfolios if there is perfect positive correlation?
I do understand that if there is negative holding of SB ( having much higher variance) the variance of the portfolio would drop and Also it can be adjusted in a way such that the positive variance of SA ( arising from positive holding of SA) can be neutralized to a zero variance.
But I want to know, that in real world , what do we actually mean by negative holding and does it really help to achieve risk free portfolios if there is perfect positive correlation?