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

Question

Quizplus · Accepted Answer

A decrease in the portfolio standard deviation would indicate that the portfolio has been effectively diversified. Standard deviation measures the level of risk in a portfolio, and a decrease in standard deviation suggests that the risk has been spread across different assets, which is the goal of diversification. An increase in rate of return or beta is not necessarily an indicator of effective diversification, as these can be affected by other factors such as market conditions or individual asset performance.

Which One of the Following Would Tend to Indicate That