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Use the formulas for a two-asset portfolio from the book or slides. Show (use the proper statistical vocabulary!) that diversification can reduce the risk of
Use the formulas for a two-asset portfolio from the book or slides.
- Show (use the proper statistical vocabulary!) that diversification can reduce the risk of a portfolio without affecting the returns. (Hint: Use the specific mathematical term -part of the formula - that proves diversification is beneficial.)
- What is the best theoretical choice for the two assets?
- Once you have proved the concept with formulas, use your own words to explain how diversification works. (max 4-5 lines).
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