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A relative value hedge fund manager holds a long position in Asset A and a short position in Asset B of roughly equal principal amounts. Asset A currently has a correlation with Asset B of 0.97; the risk manager decides to overwrite this correlation assumption in the variance-covariance based VAR model to a level of 0.30. What effect will this change in correlation from 0.97 to 0.30 have on the resulting VAR measure?
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