medium · FRM Part 1
According to Modern Portfolio Theory (MPT), what is the 'Two-Fund Separation' principle?
- The process of splitting a portfolio's total risk into systematic and idiosyncratic components.
- All investors hold the same risky market portfolio and adjust risk by mixing it with the risk-free asset.
- Investors must hold at least two different asset classes to be considered diversified.
- A requirement to separate the front-office trading functions from the back-office risk functions.
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