As you add more stocks to a portfolio:
A) specific risk at first falls, then rises.
B) market risk is increasingly diversified away.
C) specific risk is increasingly diversified away.
D) market risk declines but specific risk rises.

Question

Quizplus · Accepted Answer

As more stocks are added to a portfolio, the specific risk (the risk associated with a particular stock) is diversified away, meaning that the impact of any individual stock's performance on the overall portfolio is reduced. However, market risk (the risk associated with the overall market) cannot be diversified away and remains present in the portfolio.

As You Add More Stocks to a Portfolio