you randomly select stocks and add them to your portfolio, which of the following statements best describes what you should expect?
A) Adding more such stocks will increase the portfolio's expected rate of return.
B) Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.
C) Adding more such stocks will have no effect on the portfolio's risk.
D) Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.
E) Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.

Question

Quizplus · Accepted Answer

Adding more randomly selected stocks will increase the diversification of the portfolio and reduce the unsystematic or diversifiable risk. However, it will not necessarily reduce the systematic risk or the beta coefficient of the portfolio. The expected rate of return may or may not increase depending on the performance of the added stocks.

You Randomly Select Stocks and Add Them to Your Portfolio