Portfolios A and B have the lowest correlation coefficient and will thus create the lowest-risk portfolio.
The standard deviation of a portfolio = [W12σ12 + W22σ22 + 2W1W2σ1σ2r1,2]1/2
The correlation coefficient, r1,2, varies from + 1 to - 1. The smaller the correlation coefficient, the smaller σportfolio can be. If the correlation coefficient were - 1, it would be possible to make σportfolio go to zero by picking the proper weightings of W1 and W2.
