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Diversification Explained: Is Your Portfolio Actually Diversified? | Canadian Investing
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Episode Summary
This episode deconstructs the mathematical engine of diversification, widely celebrated as the only "free lunch" in finance. We prove that you do not need negative correlation to reduce portfolio volatility; any correlation below plus one provides a volatility reduction with no decrease in your expected return. By analyzing a fifty-fifty mix of two assets that each carry fifteen percent individual volatility, we demonstrate the unyielding math of the free lunch: at a…
The skinny
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