For diversified investors, the appropriate measure of risk is how the return on an individual stock moves with the returns of other assets in the portfolio.

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Diversified investors care about how their portfolio as a whole is performing, not just individual stocks. Therefore, the appropriate measure of risk is how the return of an individual stock moves with the returns of other assets in the portfolio. This is known as correlation or covariance, and helps investors understand how different assets in their portfolio interact with each other.

For Diversified Investors, the Appropriate Measure of Risk Is How