First, calculate the initial portfolio VaR using the formula for a two-asset portfolio: $\text{VaR}_P = \sqrt{\text{VaR}_A^2 + \text{VaR}_B^2 + 2 \times \rho \times \text{VaR}_A \times \text{VaR}_B}$ $\text{VaR}_P = \sqrt{0.58^2 + 1.86^2 + 2 \times 0.7 \times 0.58 \times 1.86}$ $\text{VaR}_P = \sqrt{0.3364 + 3.4596 + 1.5103} = \sqrt{5.3063} \approx 2.3035 \text{ million}$

Next, rebalance the portfolio to equal weights. The initial total value is $5 + 10 = 15 \text{ million}$. Equal weights mean an investment of `$7.5` \text{ million}$in each asset. Assuming VaR scales linearly with value (since volatility remains constant):$\text{New VaR}_A = 0.58 \times \left(\frac{7.5}{5}\right) = 0.87 \text{ million}$$\text{New VaR}_B = 1.86 \times \left(\frac{7.5}{10}\right) = 1.395 \text{ million}$

Calculate the new portfolio VaR: $\text{New VaR}_P = \sqrt{0.87^2 + 1.395^2 + 2 \times 0.7 \times 0.87 \times 1.395}$ $\text{New VaR}_P = \sqrt{0.7569 + 1.9460 + 1.6991} = \sqrt{4.4020} \approx 2.0981 \text{ million}$

The effect of rebalancing on the portfolio VaR is the difference between the initial and new VaR: $\text{Difference} = 2.3035 - 2.0981 = 0.2054 \text{ million}$

The change is approximately a decrease of $0.20 \text{ million}$, making D the closest option.