In a portfolio of three randomly selected stocks, which of the following could NOT be true; i.e., which statement is false?
A) The standard deviation of the portfolio is greater than the standard deviation of one or two of the stocks.
B) The beta of the portfolio is lower than the lowest of the three betas.
C) The beta of the portfolio is equal to one of the three stock's betas.
D) The beta of the portfolio is equal to 1.
E) The standard deviation of the portfolio is less than the standard deviation of each of the stocks if they were held in isolation.

Question

Quizplus · Accepted Answer

The beta of a portfolio cannot be lower than the lowest beta of the individual stocks in the portfolio because beta, a measure of systematic risk relative to the market, is a weighted average of the betas of the individual stocks in the portfolio.

In a Portfolio of Three Randomly Selected Stocks, Which of the Following