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Unformatted text preview: o Ex. 25% of $ in C, 75% in A: ROR = .25(Cs expected ROR) + .75(As expected ROR) o Evaluating portfolio risk: Typically lower variability than its individual parts Depends on correlations between individual securities Correlation coefficients between -1 and +1 As long as investments arent perfectly correlated, there will be some reduction in risk Key is to combine securities that dont move together Simple weighted average SD is greater than SD formula that accounts for correlations Correlation of -1 is most desirable...
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- Spring '08
- Corporate Finance