To see that diversification helps in this case, suppose Calculate the variance of a portfolio of assets
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To see that diversification helps in this case, suppose 
Calculate the variance of a portfolio of assets A and B, assuming first that the returns of the individual assets are perfectly positively correlated, ρAB = 1, and then that they are uncorrelated, ρAB = 0.
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In the case of perfectly and positively correlated returns Op 05...View the full answer
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Related Book For 
Contemporary Financial Intermediation
ISBN: 9780124052086
4th Edition
Authors: Stuart I. Greenbaum, Anjan V. Thakor, Arnoud Boot
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