Unformatted text preview: average of the individual risks [since the third term in the sum is now smaller than in (*) ]. In this case there are benefits from diversification, as the investor receives the weighted average of returns, but takes on less than the weighted average of the risks. n portfolio return = R p = ∑ w i r i • the portfolio return is the weighted i=1 average of the individual returns n Key result: σ p < ∑ w i σ i • but, the portfolio risk is less than the i=1 weighted average of the individual asset risks...
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 Summer '07
 Berk
 Weighted mean, Modern portfolio theory

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