As the number of securities held in a portfolio increases, the importance of the covariance relationships decreases.

Question

Quizplus · Accepted Answer

As the number of securities in a portfolio increases, the importance of covariance relationships between the securities actually increases because it affects the portfolio's overall risk through diversification. Covariance helps in understanding how different securities' returns move in relation to each other, which is crucial for effective diversification and risk management.

As the Number of Securities Held in a Portfolio Increases