IN CFAI Reading 27 EOC question 4, it states the best diversification vehicle is an asset with high volitility and low correlation… The reasoning is that the large upswing will offset the loss of the portfolio. But doesn’t the large down swing also offset the portfolio’s gain? So the result imight lead to a lower expected return. Am I thinking about his correctly? Thanks.
I wonder the same thing. I just assume that it is purely talking about it being a diversifier, not so much what it will do to expected return. Anyone else shed some light?