The incremental risk to a portfolio from adding another stock:
A) is always greater than the average portfolio risk.
B) is always less than the average portfolio risk.
C) is always positive.
D) may be either positive or negative.

Question

Quizplus · Accepted Answer

The incremental risk to a portfolio from adding another stock may be positive, indicating that the stock increases the overall risk of the portfolio, or negative, indicating that the stock reduces the overall risk of the portfolio. Therefore, Option D is correct. Option A and B are incorrect as they indicate that the incremental risk is always greater or less than the average portfolio risk, which is not necessarily true. Option C is incorrect as the incremental risk may be negative.

The Incremental Risk to a Portfolio from Adding Another Stock