A portfolio's risk depends not only on the risks of individual assets, but also on their correlation. Correlation, a predictable relationship between assets, is measured by the correlation coefficient r. When returns are perfectly negatively correlated (one moves up when another moves down), r = -1. When returns are perfectly positively correlated (both returns move in the same direction, all the time), r = 1.
A portfolio with equal proportions of assets A and B is shown on the graph. Move the correlation slider to examine how it changes the portfolio's risk (standard deviation). You can also change the standard deviation of each asset by moving its corresponding slider. Note that when r = -1, the portfolio risk may be zero, even if the individual risks aren't.