Intraportfolio Correlation: An Application for Investments Students
University of Puget Sound - School of Business and Leadership
Business Education & Accreditation, v. 5 (1) p. 91-105
Intraportfolio correlation (IPC), a measure of portfolio diversification, is becoming increasingly popular among investment practitioners. However, despite the assertions of these adherents, IPC is far from a free lunch. Instead, it is a simplistic and flawed measure that ignores material information about the relationships among portfolio assets. Deconstructing the IPC therefore can be a productive and educational exercise (and a cautionary tale) for students of portfolio theory. In this paper, we describe IPC and offer suggestions for incorporating it into an introductory investments course.
Number of Pages in PDF File: 16
Keywords: Portfolio Theory, Diversification, Finance Pedagogy
JEL Classification: G10, G11
Date posted: January 29, 2013