Unformatted text preview: on the exposure to risk could be minimized, which implies that portfolio risk is less
than the average of the risk of the individual stocks. To illustrate this consider Figure 3, which shows how
the expected return and standard deviation change as the portfolio is comprised by different combinations
of the Nokia and Nestlé stock.
Figure 3: Portfolio diversification
Expected Return (%)
100% in Nokia 50% in Nokia
50% in Nestlé 100% in Nestlé Please click the advert You’re full of energy
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36 Corporate Finance...
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