When assessing the risk impact of adding a new security to a portfolio,it is necessary to consider the
A) New securities variance
B) Variance of every security in the portfolio
C) Weight of every security in the portfolio
D) Average covariance of the new security with every security in the portfolio
E) All of the above

Question

Quizplus · Accepted Answer

When assessing the risk impact of adding a new security to a portfolio, it is necessary to consider all of the listed factors. The new securities variance will give an idea about the risk involved with the new security. The variance of every security in the portfolio will show the risk already present in the portfolio. The weight of each security will indicate how much impact it has on the overall risk of the portfolio. The average covariance of the new security with every security in the portfolio will show how the new security will interact with the existing securities in the portfolio. Therefore, all of the listed factors must be considered when assessing the risk impact of adding a new security to the portfolio.

When Assessing the Risk Impact of Adding a New Security