Theory of Portfolio Diversification

  • [h] Effect of investing in assets that are less than perfectly correlated.
  • [i] Minimum-variance, efficient frontiers, and the global minimum-variance portfolio.
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Terms covered: Portfolio standard deviation, Minimum variance portfolio, Minimum variance frontier, Efficient frontier

Portfolio Risk, Return & Correlation Explorer

Asset Inputs (Fixed)

Asset 1 (Stocks): E[R1] = 9.6%, σ1 = 20.9%

Asset 2 (T-Bonds): E[R2] = 5.7%, σ2 = 9.4%

Portfolio Controls

w1:70% w2:30%
ρ:-0.12

Portfolio Results (Calculated)

Expected Return (E[Rp]): –%

Standard Deviation (σp): –%