Question

Foreign Portfolio standard deviations will be less than the squared sum deviations of fs and fx...

Foreign Portfolio standard deviations will be less than the squared sum deviations of fs and fx as long as the _________ is _______.

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Corr(fs,fx) < 1

Corr(fs,m) < 1

Corr(fx,m) < 1

Corr(fs,fx) > -1

Corr(fs,m) > -1

Corr(fx,m) > -1

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Answer #1

We know that portfolio standard deviation is less than the squared sum whenever there is less than perfect positive correlation

i.e.,
Corr(fs,fx) < 1

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