Discussed diversification benefits

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As part of our portfolio management chapter, we discussed diversification benefits. We said that when two stocks are combined into a portfolio, we end up with a portfolio that has a better return and better risk than the best of the two stocks. Any reasonable person would expect to have an average return and average risk when two securities are combined into a portfolio. How is it even possible to have a portfolio that has lower risk than the best of the two securities included into the portfolio?

Reference no: EM131558786

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