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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.

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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 0.99

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