Portfolio VaR with perfect correlation.

Mathrio

New Member
Hello everyone,

I need some help on understanding why perfect correlation makes a part of the equation for portfolio VaR disappear. I've tried the calculations and the answers come out the same but I don't understand why.

How do we get from: VaRp = sqrt(VaR1^2+VaR2^2+2VaR1VaR2)

to

VaRp = VaR1+VaR2

I don't understand how the 2VaR1VaR2 cancels out.

Thanks,

Mathematically challenged FRM test taker
 
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