I am looking for intuition here. I understand that diversification decreases the variance of the portfolio. However, what I am confused is that it also effectively decreases the return.
Assume I have perfectly negatively correlated assets — one goes up, another one goes down. Net I am 0 with 0 volatility. So, what's the point? I have a basket, half are up and half are down because I diversified well. But then so as my return will be 0? As soon as combine opposites I also decrease my return? Only if all assets grow and negatively correlated I do get positive return which is some average between the holdings. But I think I should strive for mostly negatively correlated assets and thus my return will always be the difference between the two? I am just confused how diversification affects the investing goal of maximizing a return!