Portfolio A has but one security, while Portfolio B has 100 securities.Because of diversification effects, we would expect Portfolio B to have the lower risk.However, it is possible for Portfolio A to be less risky.

Question

Quizplus · Accepted Answer

While diversification generally reduces risk, if the single security in Portfolio A is less risky than any individual security in Portfolio B, then Portfolio A could potentially have less overall risk.

Portfolio a Has but One Security, While Portfolio B Has