A financial planner is examining the portfolios held by several of her clients. Identify which of the following portfolios is likely to have the smallest standard deviation:
A financial planner is examining the portfolios held by several of her clients. Identify which of the following portfolios is likely to have the smallest standard deviation:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A financial planner is examining the portfolios held by several of her clients. Identify which of the following portfolios is likely to have the smallest standard deviation:
A portfolio consisting of about 30 energy stocks
A portfolio containing only Chevron stock
A portfolio consisting of about 30 randomly selected stocks
The risk in a portfolio will increase if more stocks that are negatively correlated with other stocks are added to the portfolio.
The market risk component of the total portfolio risk can be reduced by randomly adding stocks to the portfolio.
The portfolio’s risk is not the weighted average of the individual stocks’ standard deviations.
When returns on Stock A increase, returns on Stock B also increase. In general, this would mean that Stocks A and B are positively correlated.
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