hi everybody, with that u do well in your studying
book 4 page 363 they provide us the formulla of how we evalauting the diversification benefit of new asset beofre adding it to the portfolio
and the formulla states the the E(Rnew)=RF+ (standard deviation of new asset) * correlation of the new asset and portfolio) divided by stanard deviation of the portfolio * ( E(Rp)-RF).
my question if why we should use only the standard deviation of the new asset to determine the covaraince in the numerator??
Thank You