Based on the previous results, we can say that, as we include more
( I% R* m6 z Qand more assets into our portfolio, the ”variance risk” can be
' u1 ~& W! w8 M& ^4 Z* ~) X- ]diversified away, whereas the ”covariance risk” cannot.
% U8 l! y3 g3 J" @In practice, we also observe similar results. As we include more5 B5 k" C2 Z0 O$ [$ U# k6 _
assets in our portfolio, the portfolio return variance firstly
, X1 A0 \8 ^9 k; A& Mdecreases, and then approach to a particular level, and will not* J T' f) G, G% s' u/ O
reach zero.
1 A2 c7 N, |5 p& Y |