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L6 - Ch6 Efficient Diversification Covariance and Portfolio...

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1 Investment Analysis: Prof. Peng 1 Ch6. Efficient Diversification Covariance and Portfolio Risk Efficient Portfolios Efficient Frontier with Riskfree Asset Optimal Capital Allocation Line Investment Analysis: Prof. Peng 2 Diversification and Portfolio Risk “Don’t put all your eggs in one basket” Effect of portfolio diversification # of securities in the portfolio σ 5 10 15 20 Diversifiable risk, non-systematic risk, firm-specific risk, idiosyncratic risk Non-diversifiable risk, systematic risk, market risk, covariance risk
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