If the plotting of a portfolio's returns against returns on the market index produces a tight pattern, then:
A)the portfolio appears to be well diversified.
B)the portfolio has a Beta of 1.0.
C)the portfolio has very little systematic risk.
D)the portfolio has a very low market risk premium.

Question

Quizplus · Accepted Answer

A tight pattern in the plotting of a portfolio's returns against returns on the market index suggests that the portfolio's returns closely follow the market's returns, indicating good diversification. This is because diversification reduces unsystematic risk, making the portfolio's performance more closely aligned with the overall market.

If the Plotting of a Portfolio's Returns Against Returns on the Market