In a perfectly negatively correlated portfolio, how do the securities behave?

In a perfectly negatively correlated portfolio, the securities are characterized by their tendency to move in opposite directions. This means that when the value of one security increases, the value of another decreases, and vice versa. This behavior can create a stabilizing effect on the overall portfolio, as the gains in one investment can offset the losses in another.

The concept of negative correlation is significant in portfolio management because it allows investors to reduce risk through diversification. By including assets that behave differently under various market conditions, an investor can achieve a more stable portfolio return and potentially protect against market downturns.

The other options do not accurately describe the behavior of negatively correlated securities. High volatility refers to large price swings, which is not inherently related to negative correlation. The idea of having no correlation implies independent movements, while moving together simultaneously suggests positive correlation, which contradicts the premise of perfect negative correlation.