So according to modern portfolio theory, I can always reduce my Risk, without affecting expected return, if I combine 2 Assets together. (If we only have 2 assets available for purchase). But how come I would combine an asset which has an expected return of 20% and a standard deviation of 2%, with an asset that has an expected return of 5% and a standard deviation of 2%. Both of them are equally risky but the first one has a much higher expected return.
I can´t imagine a scenario in which combining these 2 into a portfolio would produce better results than the first asset on its own?
Even with a perfectly negative correlation, it could in no way reduce my portfolio variance by a reasonable amount, enough to warrant the decrease in expected return, would it?
Submitted November 08, 2018 at 10:02AM by ohRyZze https://ift.tt/2AUUl86
