USING INVESTMENT PORTFOLIOS TO CHANGE RISK.

The article focuses on using investment portfolios in risk management. The effect on the variance of an investment fund through adding dependent investments is considered. A trend in risk analysis focuses on the mean and variance of the probability distribution of returns. The author notes that a person looking to avoid risk should search for negatively correlated investments. Another method of reducing risk is to find independent investments, limited by information and transaction costs, and bring them into an investment portfolio. Risk can also be reduced by adding investments with less positive correlations.