A correlation coefficient of 1 indicates a perfect positive correlation between the two assets. This means that the assets move in the same direction at the same time. In the context of a portfolio with long positions in both assets, a perfect positive correlation would mean that if one asset decreases in value, the other asset would also decrease in value, and vice versa. This simultaneous movement can lead to larger losses, thereby increasing the Value at Risk (VaR) of the portfolio. VaR is a measure of the risk of loss for investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period such as a day. Therefore, a correlation of 1 would yield the highest VaR as it represents the worst-case scenario of both assets moving in the same direction, thereby maximizing potential losses.

Choice B is incorrect. A correlation coefficient of 0.5 between the two assets would not result in the highest VaR for the portfolio. This is because a positive correlation, but less than 1,