A portfolio is comprised of five risky stocks. The standard deviations of these stocks are 5.6%, 12.8%, 2.3%, 8.9%, and 10.2%. The standard deviation of the portfolio:
A) Is equal to the arithmetic average of the individual standard deviations.
B) Must be greater than 2.3%.
C) Must equal that of the market.
D) Is equal to the weighted average of the individual standard deviations.
E) Cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio depends on the correlation between the returns of the assets in the portfolio, in addition to their individual standard deviations. Without information on the weights of the stocks in the portfolio or the correlation between their returns, the exact standard deviation of the portfolio cannot be determined.

A Portfolio Is Comprised of Five Risky Stocks