You are considering adding a new security to your portfolio. To decide whether you should add the security, you need to know the security's:
I. Expected return
II. Standard deviation
III. Correlation with your portfolio
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

All three factors are important when considering adding a new security to a portfolio. Expected return helps determine the potential profitability of the investment, standard deviation measures the risk associated with the investment, and correlation with the existing portfolio can help determine how the new security will affect portfolio diversification. Therefore, it is best to consider all three factors before making a decision.

You Are Considering Adding a New Security to Your Portfolio