mfleming1983

wannabequant wrote:
Think about the equation for portfolio variance:
Variance of Portfolio = w1^2*variance1 + w2^2*variance2 + 2*w1*w2*correlation(1,2)*stdev1*stdev2
Although the last part of the equation lowers when corr
Maybe what the original question is trying to say is this:  If you are forced to add a stock to your portfolio, having a coefficient of less than 1 will decrease the portfolio’s risk relative to if the correlation was 1. I’d agree with that.