This preview shows page 1. Sign up to view the full content.
Unformatted text preview: f returns for security j Correlation Coefficient
Correlation Portfolio risk depends on the correlation
between the returns of the assets in the
Statistical measure of relative comovements between security returns
Bounded by -1 and +1 Correlation Coefficient Correlation When does diversification pay?
Combining securities with perfect positive
correlation provides no reduction in risk
Combining securities with zero correlation
reduces the risk of the portfolio
What if the securities are perfectly
negatively Calculating Por...
View Full Document
- Spring '08