Page 147 - A Canuck's Guide to Financial Literacy 2020
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Diversification
Markowitz preached that through diversification, an investor can reduce their portfolio risk
by including investments that are not correlated with one another. He mentioned if two
securities have a correlation of 0 – means that they are perfectly uncorrelated.
Uncorrelated Securities
Correlation is simply the likelihood of two investments moving together in harmony. The
higher the correlation, the more likely they are of similar characteristics. For example, the
stock of Coke and Pepsi would be positively correlated as they’re in the same field and
industry. These investments would have a correlation of +1.
Positively Correlated Securities
