In a Two Asset Portfolio, What Happens to the Portfolio

question 5

Essay

In a two asset portfolio, what happens to the portfolio weight of the better performing asset?

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Definitions:

Attention

The mental activity of focusing attention on a single element of one's surroundings, while disregarding other stimuli.

Reinforcement

In behavioral psychology, a process that increases the likelihood of a behavior being repeated, which can be positive (adding a desirable stimulus) or negative (removing an aversive stimulus).

Operant Conditioning

A learning process in which the strength of a behavior is modified by reinforcement or punishment.

Classical Conditioning

A learning technique in which ongoing association between two stimuli eventually leads to a response initially induced by the second stimulus being induced by the first stimulus alone.