Articles & Insights
Tacita Capital Commentary  |  15 August 2010

The Free Lunch Illustrated

One of the most remarkable discoveries in modern finance is the ability to improve the expected return of a portfolio while simultaneously reducing its risk. While the proverbial “free lunch” does exist, its exploitation requires a focus not only on the returns and volatility of the assets in the portfolio but on the degree of covariance between those assets – i.e. the extent to which the returns of the assets move in tandem. All other things being equal, mixing assets that do not move in tandem will improve a portfolio’s risk-adjusted returns. Read more >