The best diversification vehicle is an asset with high volatility and negative correlation with our current portfolio. True or false ? I know negative correlation with current portfolio is good for diversification. How about “high volatility” ? why ?
The statement is true. high volatility–>so it will have large upswings when the portfolio falls
angelakitten Wrote: ------------------------------------------------------- > The statement is true. > > high volatility–>so it will have large upswings > when the portfolio falls What does it mean by “have large upswings when the portfolio falls” ?
i believe downside volatility cannot be good for any portfolio. if high volatiity asset is such that it provides higher +ve returns than rest of assets and lower -ve returns than other asset classes under all mkt conditions : such volatility can be deemed a desirable feature. negative corr. is definately a ‘plus’ for overall portfolio returns.