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Compare defined quantities
The original 40/60 model has asset standard deviations 20% and 10%. Weighted standalone dispersion is 14%; portfolio standard deviation at correlation 0.3 is approximately 11.349%. The lower-risk asset alone still has 10% dispersion.
Use the relevant denominator or comparator
| Comparator | Model result |
|---|---|
| Weighted standalone 14% | Portfolio is lower |
| Asset A alone 20% | Portfolio is lower |
| Asset B alone 10% | Portfolio is higher |
Retain the selected allocation
Changing weights changes the comparison. A phrase such as risk is reduced is incomplete without its baseline and input record. Adding a second asset does not guarantee the chosen combination is less risky than every individual asset.
Keep model and decision separate
The calculation concerns the supplied second moments. It does not measure every tail, liquidity or operational risk, and it does not select a portfolio for an individual investor. State the comparison rather than declaring a universal improvement.