principles of corporate finace—chap008.ppt

* * * * * * 3 2 2 2 2 2 Do you still remember we have a strategy to reduce the risk of any individual asset? The reason that diversification could reduce the risk of asset combination is because we have the correlation coefficient “Rou”. When different assets maintain the returns that are effected differently by the same factors, the change of return would not hurt the overall expected return of a portfolio in your hand. For example, when you have Dell stock which is a high growth industrial company and Intel stock, both are in top Fortune 500. Now, Intel, a micro chips industry firm, raises i