October 09, 2003
Mean-Variance Analysis
Comparing securities using means and variances.
The general rules:
A demonstration of why the rules are true:
Rule: V(X+Y) = V(X) + V(Y) + 2 COV(X,Y).
Proof:
Pictures of covariances and correlations:
Question: Can investors exploit this last rule and/or the Central Limit Theorem to get favorable combination of risk and return?
Posted by bparke at October 9, 2003 04:36 PM