Diversification will not reduce the riskiness of a portfolio of stocks if the average stock correlation is +0.35? True or False?
Added by Bradley C.
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Diversification is a risk management strategy that involves mixing a wide variety of investments within a portfolio. The goal is to reduce the overall risk of the portfolio by investing in assets that are not perfectly correlated. Show more…
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based on your understanding of portfolio risk identify whether each statement is true or false. the unsystematic risk component of the portfolio risk can be reduced by adding negatively created stock to the portfolio because of the effects of diversification the portfolio's is likely t be more than the average or all stocks standard deviations.aportfolio risk is likely to be smaller than the average all stocks standard deviation because diversification lowers the portfolio risks portfolio risk will increase if more stocks that are negatively correlated with other stocks are dded to the portfolio
Supratim P.
Suppose each stock in Andre's portfolio has a correlation coefficient of 0.40 (ρ = 0.40) with each of the other stocks. The market's average standard deviation is approximately 20%, and the weighted average of the risk of the individual securities in the partially diversified four-stock portfolio is 33%. If 40 additional randomly selected stocks with a correlation coefficient of 0.30 with the other stocks in the portfolio were added to the portfolio, what effect would this have on the portfolio's standard deviation (σp)? A. It would gradually settle at approximately 20%. B. It would decrease gradually, settling at about 0%. C. It would stay constant at 33%. D. It would gradually settle at approximately 50%.
T. L.
true or false the risk of a portfolio is generally not equal to the weighted average standard deviatin of expected return of each stock in the portfolio
Yujie W.
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