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To: nihil who wrote (82308)	11/25/1998 10:23:00 AM
From: Moominoid	Respond to of 176387

The variance we're talking about is of the percent return. Mean and variance of returns (log of first difference of accumulation index) is what should be correlated. DELL certainly has a higher variance than many stocks but probably is fairly NW and therefore high quality on the Mean (y) and variance (x) graph. It's beta is also high. Which of these two is most relevant depends how diversified you are. There are plenty of stocks with big variances and low returns too. Some of those are good for trading <g>.

To: nihil who wrote (82308)	11/25/1998 10:40:00 AM
From: Geoff Nunn	Read Replies (1) \| Respond to of 176387

The basic portfolio assumption is that diversification among stocks with low intercorrelations of returns produces a higher expected return than the expected return of any stock with a high variance. Not true. The point of choosing stocks with low inter-correlations (so called Markowitz diversification) is to reduce risk without sacrificing expected return. Perhaps what you meant to suggest is that higher expected return per unit of risk can be achieved, according to conventional theory, using the low correlation approach.