Which one of the following would tend to indicate that a portfolio is being effectively diversiﬁed?
A) An increase in the portfolio beta.
B) A decrease in the portfolio beta.
C) An increase in the portfolio rate of return.
D) An increase in the portfolio standard deviation.
E) A decrease in the portfolio standard deviation.

Question

Quizplus · Accepted Answer

A decrease in the portfolio standard deviation would indicate that the portfolio is being effectively diversified. This means that the portfolio is becoming less risky by spreading investments across different assets, reducing the impact of any single asset on the overall portfolio. A decrease in the portfolio beta could also indicate diversification, but it is not as reliable an indicator as the standard deviation, which directly measures the portfolio's volatility. An increase in portfolio rate of return is not necessarily an indication of diversification, as it could be due to a concentration in a risky asset or sector.

Which One of the Following Would Tend to Indicate That