Two Risky Assets

[David1717]

If there are two risky assets with a correlation coefficient egual to 1 (perfectly correlated) which combinations of portfolios are efficient?

[EDDIE51]

Any chance of asking this in language I can understand?

[dzug2]

Well if I recall correctly (which I probably don't) what I maybe didn't understand properly forty mumble years ago the answer is either any combination or 50:50. The first seems more logical

Alternatively to echo eddie more succinctly --- yer what???

[factor-fiction]

This seems an interesting article
http://www.columbia.edu/~ks20/FE-Notes/4700-07-Notes-portfolio-I.pdf

[Peter Pedant]

blimey FF that is fantastic

and the answer appears to be just above para 1.4 put n = 2

[FredPuli43]

Eddie, some investors rely on mathematical methods in assessing investments. Some rely on graphs and look for shapes in the line to predict what the share will do. All end up using jargon which nobody else understands. I very much doubt whether Warren Buffet, the Sage of Omaha, a self-made billionaire who made his fortune in such matters, is among them l But he knows how to read balance sheets and accounts and judge what a company is capable of.

[factor-fiction]

Thanks PP. I used to love reading and using these sort of papers but I find it much harder now to be bothered. As eddie says, many of these wonderful mathematical models aren't of much use generally in my opinion because there are always too many assumptions and in practice too many external factors.

[Peter Pedant]

Eddie the first three lines of Freddie's posts are about stock pickers called Chartists. The shape of the lines will tell you how the market will respond. The theoretical basis is that the stock price is only dependent on confidence -that is how much the public think the company is worth (whether or not it has any assets).

The dot .com bubble certainly followed this- the price of the now worthless stocks was only dependent on buyers; confidence.

didnt electric stocks go up 20% when the green levies were lifted even though their asset base was no different the day before


and I thought there was a similar effect on RBS - they are not more crap than they were earlier in the week - it si just everyone now thinks so, and the price dipped.

DOI - I dont make much money on the stock market...