Security Analysis and Portfolio Management - Assignment Example

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You can use any database to obtain the prices e.g. data stream, yahoo finance (click the Investing tab followed by the Historical Prices tab) etc. Use data from…
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Security Analysis and Portfolio Management
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Download file to see previous pages Identify the MVP and efficient frontier consisting of the portfolios made up of these two assets. Label them clearly on the graph. (5 marks)
The combination of two risky assets is concave and this depends on the extent of the correlation. Where the two assets have a perfect positive or a perfect negative correlation; they will form the following graph.
It can be observed that perfect correlation has no benefit from diversification because the portfolio standard deviation=the weighted average of the parts. A perfect negative correlation gives a zero-risk portfolio. As you reduce the correlation between pairs of assets, the portfolio risk is reduced. Since most assets are not perfectly correlated, they will usually lie in a curve that curves to the left.
An investment can minimize his risk by holding a combination of assets that are not perfectly correlated, -1 ...Download file to see next pagesRead More
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