medium · FRM Part 1
A 3 × 3 correlation matrix has eigenvalues λ_1 = 1.5, λ_2 = 1.5, λ_3 = 0.
What does this indicate about the assets in the portfolio?
- The portfolio has negative variance in certain configurations.
- The assets are completely independent of one another.
- One asset is a perfect linear combination of the other two (multicollinearity).
- The matrix is invalid because the eigenvalues are not all equal.
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