The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Mechanical Investing

URL:  http://boards.fool.com/2-the-blend-gsd-cannot-be-any-smaller-than-the-26105568.aspx

Subject:  Re: CAGR/GSD Limits of Blends Date:  11/16/2007  10:29 AM
Author:  warrl Number:  203960 of 254176

2. The blend GSD cannot be any smaller than the smallest GSD component value.

Yes it can. That's the whole point of diversifying.

a. The reduced GSD goal of a blend can be achieved if, and only if, at least two of the components are negatively correlated (i.e., the components vary “out of phase” so that when one tends to go up, another tends to go down).

Incorrect. It is sufficient that the correlation be less than 1. (The lower the better, and negative is really good.)
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us