If a share portfolio is well diversiﬁed, then the portfolio variance:
A)will equal the variance of the most volatile share in the portfolio.
B)may be less than the variance of the least risky share in the portfolio.
C)must be equal to or greater than the variance of the least risky share in the portfolio.
D)will be a weighted average of the variances of the individual securities in the portfolio.
E)will be an arithmetic average of the variance of the individual securities in the portfolio.

Question

Quizplus · Accepted Answer

Diversification can reduce the portfolio's overall risk to a level that is lower than the risk of the individual securities, including the least risky one, due to the benefits of combining uncorrelated or negatively correlated assets.

If a Share Portfolio Is Well Diversiﬁed, Then the Portfolio