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Paper: ETH-RC-13-004

Title: Overlapping Correlation Coefficient

Authors: Paolo Tasca*


Abstract:

This paper provides a mapping from portfolio risk diversification into the pairwise correlation between portfolios. In a finite market of uncorrelated assets, portfolio risk is reduced by increasing diversification. However, higher the diversification level, the greater is the overlap between portfolios. The overlap, in turn, leads to greater correlation between portfolios.


Keywords: diversification, overlapping portfolios, correlation

Manuscript status: Submitted

JEL codes: C02, G11
PACS numbers:



Local copy of the paper: ETH-RC-13-004.pdf


Submission date: 24-9-2013


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