If a stock portfolio is well diversified,then the portfolio variance
A)must be equal to or greater than the variance of the least risky stock in the portfolio.
B)will be a weighted average of the variances of the individual securities in the portfolio.
C)will equal the variance of the most volatile stock in the portfolio.
D)will be an arithmetic average of the variances of the individual securities in the portfolio.
E)may be less than the variance of the least risky stock in the portfolio.

Question

Quizplus · Accepted Answer

A well-diversified portfolio can have a variance that is lower than the variance of any single stock within it, due to the benefits of diversification which can reduce unsystematic risk.

If a Stock Portfolio Is Well Diversified,then the Portfolio Variance