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Unformatted text preview: o Ex. 25% of $ in C, 75% in A: ROR = .25(C’s expected ROR) + .75(A’s 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 aren’t perfectly correlated, there will be some reduction in risk • Key is to combine securities that don’t “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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This note was uploaded on 06/11/2011 for the course BUSI 408 taught by Professor Croce during the Spring '08 term at UNC.
- Spring '08
- Corporate Finance