Investopedia
Investment success heavily relies on diversification, as explained by Ray Dalio in this video. He delves into the components of risk, such as correlation and sample size, and highlights how adding uncorrelated return streams can balance risk and improve the return to risk ratio. Instead of finding the best individual investments, the trick is to discover 15-20 uncorrelated, promising return streams to reduce the probability of losing money to only 11%.
In this section, Ray Dalio explains the importance of diversification for investment success. He breaks down the concept of risk into its components, such as correlation and sample size, and uses a chart to illustrate how adding uncorrelated return streams can balance risk and improve the return to risk ratio significantly. Instead of trying to find the best individual investments, the magic is in finding 15 to 20 uncorrelated, promising return streams that can reduce the probability of losing money to just 11%.
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