giants2010

maisatomai wrote:
…I conclude that portfolio risk can be reduced to zero.
In theory, all you need is two perfectly negatively correlated assets. Set w1=sigma2/(sigma1 + sigma2), and you have a zero volatility portfolio. Again, assuming corr1,2 = -1.
As per the zero beta portfolio, it can also be easily achieved with index futures. Counterparty risk should be minimal.