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Diversification in Stock Portfolios for a risk averse investor

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I know a risk-adverse investor would choose the economy in which stock returns are independent because this risk can be diversified away in large portfolio. I need a bit more explanation in a brief.

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This solution helps with a question regarding the diversification in stock portfolios for a risk averse investor.

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A risk averse investor would choose to invest in the second economy as the stock prices are not correlated hence better diversification (lower risk) can be achieved.

The stocks prices in the first economy will have high correlation with each other meaning thereby that all the stock would rise and fall together. So in good economy the ...

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