hard · FRM Part 1 Quantitative Analysis
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 exhibits negative variance under certain asset weight configurations
- The three assets are mutually and completely independent of one another
- One asset is a perfect linear combination of the other two (multicollinearity).
- The matrix is invalid because its eigenvalues are not all equal to one another
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