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SeanWest

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tT
发表于 2013-4-13 23:58 | 只看该作者

portfolio problem --add more stock

first, situation, problem, stocks
I have two situation, the first is I have twenty shares, but they are highly correlated,
the second is I have twenty other shars, but are low correlated with each other, compared with the first situation should i add more stocks to diversify? or should I add less stocks?
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former

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2#
发表于 2013-4-13 23:58 | 只看该作者
how you derive this formula?

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kmf229

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3#
发表于 2013-4-13 23:58 | 只看该作者
I always thought the important thing was to know how your prospective stock was correlated with all the stocks in the portfolio rather than the portfolio stocks correlation with each other…

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Iginla2011

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4#
发表于 2013-4-13 23:59 | 只看该作者
Haha yeah I think so.
linping, to answer your original question, provided that the risk profiles of the two stocks are fairly similar you would most likely always add the security with low correlation to the existing portfolio.
Add more.

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thommo77

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5#
发表于 2013-4-13 23:59 | 只看该作者
^ now I think you got this reversed. Pls clarify, what is the relationship between correlation and n? I think you need a lower correlation for diversification to be effective, and a higher n is the solution.

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hardwork24

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6#
发表于 2013-4-13 23:59 | 只看该作者
why N(number of stocks) increases with low correlation?

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