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March 22, 2005

Mean-Variance Analysis - I

Consider three assets and the means, variances, and standard deviationa of their returns.

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While the variance is a measure of risk, we can also compute the utility-based value of the risk.

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The Central Limit Theorem is a fundamental tool in mean-variance analysis.

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Rules for linear combinations of assets are also important.

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For example, we can analyze a portfolio of two stocks.

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Question, what kind of covariance is best for reducing risk?

Posted by bparke at March 22, 2005 09:06 PM

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