What does these two statements mean?
low pairwise correlations with other asset classes is not sufficient. Asset classes should have return premium based on market risk factor ( beta) and not skill of the investor
Low pairwise correlations with other asset classes is not sufficient - you need to evaluate correlations across the entire portfolio, not just between two asset classes.
Asset classes have a return premium based on their sensitivities to risk factors e.g. B(Rp - Rf). Investor skill is not a risk factor.
i see. thanks
i think the second one refers to for example the additional return you would expect for investing in a small cap index fund compared to a broad index fund. the small cap index fund is riskier but you are still investing passively so you expect a return premium proportional to the beta of the small cap index. the beta of the broad index will likely be 1 and beta of the small cap index greater than 1