A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio.It is this aspect of portfolios that allows investors to combine stocks and actually reduce the riskiness of a portfolio.

Question

Quizplus · Accepted Answer

A portfolio's risk is not measured by the weighted average of the standard deviations of the securities in the portfolio, but rather by the portfolio's overall variance or standard deviation, which takes into account the correlation between the returns of the securities in the portfolio. Diversification can reduce risk, but it's the correlation between the assets, not just their individual risks, that determines the portfolio's total risk.

A Portfolio's Risk Is Measured by the Weighted Average of the Standard