4 ms·
The point of diversification is that no one gets shafted because lots of people are left holding the the "baby" together. It does not reduce the total amount o
by seanflyon 12y ago
The point of diversification is that no one gets shafted because lots of people are left holding the the "baby" together. It does not reduce the total amount of loss but it trades a 1% chance of losing $50 with a 50% chance of losing $1.
- vegabook 12y agosure but when correlations go to 1, you're as badly off as if you only had one position. Diversification engenders false senses of security, and moreover, means everybody has a bit of everything. Therefore mass panic can ensue causing the correl matrix to ramp. See: 2008. I contend that diversification makes for great maths, but often poor risk management.