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Harry Markowitz won a Nobel Prize in Finance for his contribution to the portfolio theory. He proved that portfolio risk, measured by standard deviation of

Harry Markowitz won a Nobel Prize in Finance for his contribution to the portfolio theory. He proved that portfolio risk, measured by standard deviation of portfolio returns, is a direct function of correlation between the assets inside the portfolio.

1. Why is correlation important?

2. How is it measured?

3. Is it possible to have a negative correlation between two assets?

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