3. Markowitz Diversification

This type of diversification considers the correlation between individual securities. It is the combination of assets in a portfolio that are less then perfectly positively correlated.
- a. The two asset case:
  - Stk. A Stk. B
  - E(R) 5% 15%
  - ? 10% 20%

This type of diversification considers the correlation between individual securities. It is the combination of assets in a portfolio that are less then perfectly positively correlated.