Debra is an investor just starting out in the stockmarket. She starts with a purchase of $10,000 of shares in ABC Ltd which has a standard deviation of returns of 10% p.a. She then invests another $10,000 purchasing shares in XYZ Ltd which has a standard deviation of returns of 40% p.a.. She estimates that the standard deviation of returns of their portfolio has increased from 10% p.a. before the XYZ purchase to 22% p.a. after the purchase. Which of the following statements correctly describe what has happened (or could have happened) to the risk position of Debra’s portfolio following the investment in XYZ? Group of answer choices
Debra is an investor just starting out in the stockmarket. She starts with a purchase of $10,000 of shares in ABC Ltd which has a standard deviation of returns of 10% p.a. She then invests another $10,000 purchasing shares in XYZ Ltd which has a standard deviation of returns of 40% p.a.. She estimates that the standard deviation of returns of their portfolio has increased from 10% p.a. before the XYZ purchase to 22% p.a. after the purchase.
Which of the following statements correctly describe what has happened (or could have happened) to the risk position of Debra’s portfolio following the investment in XYZ?
Group of answer choices
Debra has not experienced any diversification benefit
The maximum diversification benefit that Debra could expect is if the correlation coefficient between the
More than one of the other statements is correct
Debra would only achieve a diversification benefit if the correlation coefficient between the returns of ABC and XYZ shares is less than +1
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