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Can we make any reasonable assumptions about the future ?Those who have will act to preserve what they have, and the government will try to maximize revenues.Can we assume that a diversified portfolio of stocks will be correlated with a separate diversified portfolio of stocks ?How do you compose the two portfolios? How do you weight the stocks in each portfolio? I think there are too many variables to answer that question.Can we assume that the return on two portfolios of stocks will be more closely correlated than the returns on a portfolio of stocks and say bonds ?Here I can give a resounding NO. It might be the case some of the time, but it won't be the case all the time.My understanding of the central tenet of Modern Portfolio Theory that the volatility on a diverse portfolio of stocks is lower than the volatility of the individual component stocks ? Yes -- provided you compose the portfolio correctly. Also, without knowing all the correlations between the stocks, you won't know how much you lower the volatility.A diversified portfolio of sufficient size will limit individual company risk.
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