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What is Diversification Benefits in Portfolio Theory about?

1) Diversification reduces portfolio risk through lowering the unique risk of individual securities, leaving mainly market risk which cannot be diversified away. 2) Portfolio risk is calculated using the covariance between securities rather than just adding the individual risks. More securities leads to covariance dominating individual security risk. 3) The optimal portfolio that maximizes return for a given risk is found by plotting the efficient frontier, which shows all portfolios with the highest re

Author

vaibhav

Language

EN