What does the risk-level of a portfolio with a perfect negative correlation indicate?

A portfolio with a perfect negative correlation indicates that the assets in the portfolio move in opposite directions. This means that when one asset increases in value, the other decreases by a proportional amount, effectively balancing each other's fluctuations. As a result, such a portfolio can minimize overall risk, leading to a situation where the combined volatility of the assets can become negligible.

By perfectly balancing the risks associated with each of the negatively correlated assets, the portfolio can theoretically achieve a risk level that is very close to zero. This ideal scenario can provide stability and protection against market fluctuations, making it an attractive proposition for risk-averse investors. Therefore, a portfolio with a perfect negative correlation is considered to have no risk at all, as the losses from one investment are completely offset by gains in another.

In contrast, portfolios with maximized risk, moderate risk, or risk of loss could consist of assets that may be positively correlated, where the movements of assets do not balance each other effectively, thereby exposing the portfolio to market volatility and potential losses.