Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Discuss the meaning of table 7.4 with a particular focus on the reduction in standard deviations for the p = 0 and p = .40
Discuss the meaning of table 7.4 with a particular focus on the reduction in standard deviations for the p = 0 and p = .40 correlation cases. How should one interpret what happens to standard deviation at n = 20, 100, and 101? Mathematically, explain the derivation and implications of equation 7.21 in the context of diversification.
Table 7.4 Risk reduction of equally weighted portfolios in correlated and uncorrelated universes Portfolid Standard Deviation Reduction Standard Deviation (%) 50.00 41.83 36.06 35.36 33.91 33.71 32.79 32.73 31.86 31.86 Universe Weights Size n w-1 (%) (%) Reduction in T 8.17 0.70 0.20 in 50.00 35.36 22.36 20.41 15.81 15.08 11.18 10.91 5.00 4.98 100 14.64 50 20 16.67 1.95 0.73 0.27 0.02 9.09 20 0.06 4.76 100 101 0.00 0.99Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started