If the plot of a portfolio's returns against returns on the market index produces a tight pattern,then the portfolio:
A) appears to be well diversified.
B) has a beta of 0.
C) has very little systematic risk.
D) has a risk premium lower than the market.

Question

Quizplus · Accepted Answer

A tight pattern on the plot of a portfolio's returns against returns on the market index suggests that the portfolio is well diversified, meaning it is not overly reliant on a few individual securities to generate returns. This indicates lower unsystematic risk and therefore the portfolio is expected to perform better than the market with a similar level of systematic risk.

If the Plot of a Portfolio's Returns Against Returns on the Market