Read the story here. Advertise at Before It's News here.
Profile image
By FalkenBlog (Reporter)
Contributor profile | More stories
Story Views
Last hour:
Last 24 hours:


% of readers think this story is Fact. Add your two cents.

I was interested in calculating what the portfolio volatility would be for a portfolio given various correlation assumptions, and also the number of assets. So I took two portfolio of the S&P500 in two very different years: 2008 and 2017. The VIX had one of its highest average levels in 2008, at 31.5, while its lowest in 2017, at 11.0.  Because I’m interested in low vol portfolios, I took the stocks with below-average volatility from the prior year.  The statistics on these 250 stocks were as follows:

Lowest 250 vol stocks in S&P500

2008 2017
AvgVol 60% 19%
AvgCorr 0.14 0.48

Both total volatility and correlation were about 3 times higher in the crisis year of 2008. This is because the total market volatility was so much higher. One could say correlations rise in bad times, but one could also say that mathematically, given a ‘one-factor’ model (the market), if the market has higher volatility its assets will have a higher correlation.  

The equation I presented last week calculates portfolio volatility as follows:
  • Volatility (n assets, correlation c)=sqrt(avgVol^2/n + (n-1)/n*c*avgVol^2)
Here c is the average correlation, so the average of the correlation matrix off the diagonal. Volatility and correlation are taken from the same period here, that in the years 2008 and 2017.
In the equation, most of this diversification benefit happens rather quickly, with 90% of it coming after n=15. Given many people look at multiple factors, not just the market factor, this could make this formula less relevant. So I took all those 250 stocks and created thousands random of sub-portfolios to get an estimate of the actual, or empirical, volatility. 
Comparing this to the formula generated the data in the above chart: they are basically identical. You only see two lines because there are two sets of lines that overlap. In both scenarios, the 10 asset portfolio had insignificantly higher volatility than the 250 asset portfolio. While the correlations are quite different, generating different levels of diversification as a function of the number of assets, they both almost perfectly matched the simple formula.  
Bottom line: 10 assets really is enough.  


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Humic & Fulvic Liquid Trace Mineral Complex

HerbAnomic’s Humic and Fulvic Liquid Trace Mineral Complex is a revolutionary New Humic and Fulvic Acid Complex designed to support your body at the cellular level. Our product has been thoroughly tested by an ISO/IEC Certified Lab for toxins and Heavy metals as well as for trace mineral content. We KNOW we have NO lead, arsenic, mercury, aluminum etc. in our Formula. This Humic & Fulvic Liquid Trace Mineral complex has high trace levels of naturally occurring Humic and Fulvic Acids as well as high trace levels of Zinc, Iron, Magnesium, Molybdenum, Potassium and more. There is a wide range of up to 70 trace minerals which occur naturally in our Complex at varying levels. We Choose to list the 8 substances which occur in higher trace levels on our supplement panel. We don’t claim a high number of minerals as other Humic and Fulvic Supplements do and leave you to guess which elements you’ll be getting. Order Your Humic Fulvic for Your Family by Clicking on this Link , or the Banner Below.

Our Formula is an exceptional value compared to other Humic Fulvic Minerals because...


It Always Tests at 9.5+ pH

Preservative and Chemical Free

Allergen Free

Comes From a Pure, Unpolluted, Organic Source

Is an Excellent Source for Trace Minerals

Is From Whole, Prehisoric Plant Based Origin Material With Ionic Minerals and Constituents

Highly Conductive/Full of Extra Electrons

Is a Full Spectrum Complex

Our Humic and Fulvic Liquid Trace Mineral Complex has Minerals, Amino Acids, Poly Electrolytes, Phytochemicals, Polyphenols, Bioflavonoids and Trace Vitamins included with the Humic and Fulvic Acid. Our Source material is high in these constituents, where other manufacturers use inferior materials.

Try Our Humic and Fulvic Liquid Trace Mineral Complex today. Order Yours Today by Following This Link.

Report abuse


    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    Load more ...




    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.