While a little off the subject of R-code and helping the community out just wanted to add some food for thought on the portfolio diversification comments that have been floating on the list based on some old research I did. 

Consider the question you are looking to answer before we dismiss diversification and how much diversification is useful. There are many papers that explore diversification in terms of terminal wealth standard deviation which is quite important for those in the asset-liability management world, e.g. pension funds, where a short-fall at any given instance is perhaps most important. Most conclusions in this area is that more diversification even with high correlation coefficients (of course not 1.0) between managers (instruments) pays off depending on implementation costs. I looked at this in terms of trend following CTAs and found that diversification continues to pay off when looking at terminal wealth vs time series standard deviations well beyond what the standard rules of thumb tell you. 

Marc



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