The standard deviation of a portfolio of assets
A) increases as the number of assets in the portfolio increases.
B) increases as the weight in any particular asset increases.
C) increases as the standard deviations of the assets change through time.
D) increases as the assets' expected returns increase.
E) increases as the assets' covariances increase.

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio of assets is affected by the covariances between the assets. Covariance is a measure of how two assets move together, and a higher covariance between assets will increase the volatility and risk of the portfolio. Therefore, the standard deviation of a portfolio increases as the assets' covariances increase.

The Standard Deviation of a Portfolio of Assets