Which one of the following would tend to indicate that a portfolio is being effectively diversified?
A)A decrease in the portfolio standard deviation
B)An increase in the portfolio rate of return
C)An increase in the portfolio beta
D)An increase in the portfolio standard deviation
E)A constant portfolio beta

Question

Quizplus · Accepted Answer

A decrease in the portfolio standard deviation indicates that the portfolio is effectively diversified. Standard deviation measures the total risk of a portfolio and a decrease in it means that the portfolio is less risky and more diversified. An increase in the portfolio rate of return or beta may indicate that the portfolio is taking on higher levels of risk and may not necessarily mean that it is diversified. A constant portfolio beta does not provide any information about diversification.

Which One of the Following Would Tend to Indicate That