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 relevant risk, but it is possible for Portfolio A to be less risky.

Question

Quizplus · Accepted Answer

While diversification generally helps to lower risk, it's still possible for a single well-chosen security in Portfolio A to have lower relevant risk than the 100 securities in Portfolio B.

Portfolio a Has but One Security, While Portfolio B Has