Based on the previous results, we can say that, as we include more$ n$ n X* r$ Z8 O& q1 m1 P
and more assets into our portfolio, the ”variance risk” can be
' m( d' o$ S- m, w2 pdiversified away, whereas the ”covariance risk” cannot.. X$ M) M4 s7 N. p \/ |
In practice, we also observe similar results. As we include more8 F/ q# Q, ]3 N7 n
assets in our portfolio, the portfolio return variance firstly* P3 K' O# D1 J+ J
decreases, and then approach to a particular level, and will not* m8 |: ?' X! M# f% r( e$ B6 n
reach zero.
- c* n5 `: b6 k7 l8 L8 M$ Z4 g |