The risk of a portfolio is simply equal to the weighted average variance of the securities that comprise it.

Question

Quizplus · Accepted Answer

The risk of a portfolio is not only determined by the weighted average variance of the securities but also by the covariance or correlation between the returns of the securities within it. Diversification effects can significantly reduce portfolio risk beyond what would be expected from looking at individual security variances alone.

The Risk of a Portfolio Is Simply Equal to the Weighted