Download or read book What Measures the Benefits of Diversification written by Meir Statman and published by . This book was released on 2005 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: While correlation is the common indicator of the benefits of diversification, it is not a good indicator. This is for three reasons. First, diversifiable risk depends not only on the correlations between stock returns but also on the standard deviations of stock returns. Second, correlation does not provide an intuitive indicator of the benefits of diversification. Third, expected diversifiable risk, estimated from correlations and standard deviations, is biased when the distribution of the returns of stocks around the mean return of all stocks is not normal. We know diversifiable risk as unsystematic risk, tracking error and dispersion. We analyze diversifiable risk in portfolios of U.S. stocks during 1980-2004.