tweety0930

sample 2 Q14:

 

Var (p) = Sum of n Var(i) + Sum of n*(n-1) Cov (i,j)

 

Cov (i,j) = rho * sigma i * sigma j

 

When rho < 0, Var (p) decreases as sigma i, sigma j get larger.

 

Given negative correlation, larger volatility (as massured by sigma or Variance) results greater diversification benefit