Which of the following statements is CORRECT?
a. If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.
b. A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.
c. A two-stock portfolio will always have a lower beta than a one-stock portfolio.
d. A stock with an above-average standard deviation must also have an above-average beta.
e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

Question

07-10-2019
Business

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Which of the following statements is CORRECT?
a. If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.
b. A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.
c. A two-stock portfolio will always have a lower beta than a one-stock portfolio.
d. A stock with an above-average standard deviation must also have an above-average beta.
e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

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Answer:

e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

Explanation:

e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.