Minimum variance and efficient set 39
Two Fund Separation Theorem
: combinations of
portfolios on the minimum variance set are again on the minimum variance set
Remarks
Once you found any two funds on the efficient set, it is possible to create all other mean-variance ef
ficient portfolios from these 2
funds
Ä
there is no need for anyone to purchase individual stocks
separately!
It suffices to replicate mean and variance, since the prices of portfolios with the same mean and the same variance have to be the same (law of one price)!
Single-period random cash flows: Mean-variance portfolio theory