标题: Higher correlation, less stocks. What? [打印本页] 作者: meghanjackson 时间: 2011-7-13 13:19 标题: Higher correlation, less stocks. What?
From p.393 of Vol6.
If the correlation among stocks were 0.1, the investor would need 90 stocks in the portfolio to obtain 110% of the minimum possible portfolio variance. If correlation amonng stocks were 0.5, the investor would only need 10 stocks.
I don't get the logic of needing less stocks if they're highly correlated. Shouldn't we be taking more to reduce the effect of high correlation?作者: SeanWest 时间: 2011-7-13 13:19
Because with a lower avg correlation the are greater possible benefits of diversification. With avg corr of 0.1 the maximum benefits of diversification is equal to 10% of the avg variance. so 110% would be 11% of the average variance. with p = 0.5 the maximum benefits of diversification are 50% of the avg variance... therefore 110% would be 55% of the average variance.
because the lower correlation stocks have such greater potential diversification benefits the portfolio requires a larger # of these stocks in order to achieve these benefits.
