Sharp performance measures for individual securities will generally be _____ the capital market line because of
A) right on; the measure of return per risk assumed.
B) randomly distributed above and below; systematic risk.
C) below; diversifiable risk.
D) below; market risk.

Question

Quizplus · Accepted Answer

Sharp performance measures for individual securities will generally be below the capital market line because of diversifiable risk. The capital market line represents portfolios that have fully diversified away their diversifiable risk, leaving only the systematic or market risk. Individual securities, on the other hand, carry both systematic and diversifiable risk, making their risk-adjusted returns (as measured by the Sharpe ratio) generally lower than those of the diversified portfolios on the capital market line.

Sharp Performance Measures for Individual Securities Will Generally Be _____