Unformatted text preview: series having a correlation coefficient of 1
Uncorrelated describes two series that lack any relationship and have a correlation coefficient of nearly zero Figure 5.1 The Correlation
Between Series M, N, and P
Why Diversification Works!
Why To reduce overall risk in a portfolio, it is best to combine assets that have a negative (or low
Uncorrelated assets reduce risk somewhat, but not as effectively as combining negatively correlated assets
Investing in different investments with high positive correlation will not provide sufficient diversification Figure 5.2 Combining Negatively
Correlated Assets to Diversify Risk
Correlated Table 5.3 Correlation, Return, and Risk for
Various Two-Asset Portfolio Combinations
Various Figure 5.3 Range of Portfolio Return and
Risk for Combinations of Assets A and B
for Various Correlation Coefficients
for Figure 5.4 Risk and Return for All
Combinations of Assets A and B for
Various Correlation C...
View Full Document
This note was uploaded on 10/31/2012 for the course ECON 435 taught by Professor Staff during the Fall '08 term at Maryland.
- Fall '08