FIGURE 6.1 There are many ways risks can combine, ranging from perfect anticorrelation (A) to perfect correlation (B). An important case in between is independence (C). The total risk posed depends on how much risk is ‘wasted’ in the overlap—the region where we’d suffer a catastrophe even if we eliminated one of the risks. A large overlap reduces the total risk, but also reduces the benefits from eliminating a single risk.
