For a highly diversiﬁed equally weighted portfolio with a large number of securities, the portfolio variance is:
A)the average covariance.
B)the average expected value.
C)the average variance.
D)the weighted average expected value.
E)the weighted average variance.

Question

Quizplus · Accepted Answer

In a highly diversified, equally weighted portfolio with a large number of securities, the unique risks of individual securities cancel out, leaving the average covariance between the securities as the main component of the portfolio's variance.

For a Highly Diversiﬁed Equally Weighted Portfolio with a Large