The Effect of Diversification Assignment - The Effect of...

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The Effect of DiversificationFinance 748The purpose of adding additional stocks to a portfolio is to diversify – to reduce risk. Theextent to which risk (as measured by standard deviation) is reduced is determined by thestocks’ covariances (correlations) with each other, and their individual variances(standard deviations).In this exercise, you will select 30 stocks to put together for a portfolio. You may selectthem at random, with the intention of selecting stocks with low correlations with eachother, with the intention of selecting stocks with high correlations with each other, usingstocks that you are considering for your Stock-Trak assignment, or whatever method youchoose. These need to be stocks for which you can find monthly prices (adjusted fordividends, stock splits, etc.) for a 61-month period. The easiest way to do this is throughYahoo! Finance. They all need to be for the same 61-month period. You will also need to
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Term
Spring
Professor
Hansen

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