When the correlation coefficient between two assets is +1, the portfolio standard deviation equals the standard deviation of either asset.

‏The optimal risky portfolio is determined by estimating the expected returns and risks of available assets and calculating their correlation coefficients.Through constructing the efficient frontier, the tangency portfolio is identified, representing the highest return for a given level of risk.Funds are allocated between the risk-free asset and the tangency portfolio based on risk tolerance, with regular monitoring and rebalancing to maintain the desired risk-return profile.

‏Capital allocation reflects two key considerations: risk tolerance and return expectations.Risk tolerance guides investors in determining how much risk they are willing to take on, influencing the allocation of capital to riskier or safer assets.Return expectations determine the allocation of capital based on anticipated returns from different assets, aiming to optimize the portfolio's return potential while considering risk preferences and investment goals.