If a portfolio's risk is equal to the weighted average of the standard deviations of its

individual assets, it implies that the correlation coefficients between every pair of assets in
the portfolio are equal to either -1, 0, or 1.

This is because the formula for the standard deviation of a portfolio (assuming two assets for
simplicity) is given by:

�
12

+w

+2w

w
2

12

where:

is the standard deviation of the portfolio,

and
�

are the weights of the individual assets in the portfolio,

and

are the standard deviations of the individual assets,

12

12

is the correlation coefficient between the two assets.

If the portfolio risk is equal to the weighted average of the standard deviations of its
individual assets, then the term involving the correlation coefficient (

�
2

12

2w

12

) becomes zero. This happens when

12

12

is either -1, 0, or 1:
If

12

12

=−1, the term becomes

1
�

2w

(−1)σ

=−2w

2
, and the portfolio risk simplifies to the weighted average of the individual standard
deviations.

If

12

12

=0, the term becomes

2w

1
w

(0)σ

=0, and the portfolio risk simplifies to the weighted average of the individual standard
deviations.

If

12

12

=1, the term becomes

�
1

2w

(1)σ

=2w

w
2

, and the portfolio risk simplifies to the weighted average of the individual standard
deviations.

Therefore, if the portfolio risk is equal to the weighted average of the standard deviations of
its individual assets, it indicates that the correlation coefficients between every pair of assets
in the portfolio are -1, 0, or 1.