By Ron Piccinini, PhD This is inspired by a true story. There was this fellow named Edmund. Edmund's high-priced education had taught him the virtues of portfolio diversification. His job as a banker paid him a nice sum of cash every month, plus bonus; he had bought a house, and his retirement account was comprised of a diversified mix of domestic and international stocks. On his office wall was hanging this quote from the Merchant of Venice: "My ventures are not in one bottom trusted, nor to one place; nor is my whole estate upon the fortune of this present year." To the annoying Head of Risk he used to explain: "The five-year correlation between real estate and stocks is seven percent. And the correlation between my monthly paycheck and the stock market is even lower. Low correlation, diversification!"
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