This note describes portfolio returns and the variance calculations for a portfolio of two risky assets. Special attention to the development of understanding of the diversification benefits and emphasizes the often misunderstood point that diversification benefits even if the returns of the two stocks are positively correlated given. The note is designed as a reading, a class where students are used complement the implementation of the equations with real data.

This note describes portfolio returns and the variance calculations for a portfolio of two risky assets. Special attention to the development of understanding of the diversification benefits and emphasizes the often misunderstood point that diversification benefits even if the returns of the two stocks are positively correlated given. The note is designed as a reading, a class where students are used complement the implementation of the equations with real data.
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Jonathan F. Spitzer
4 pages.
Publication Date: Nov 16,, 2006. Prod #: UV3962-PDF-ENG
Diversification HBR case solution