A well-diversified portfolio is defined as
A)one that is diversified over a large enough number of securities that the nonsystematic variance is essentially zero.
B)one that contains securities from at least three different industry sectors.
C)a portfolio whose factor beta equals 1.0.
D)a portfolio that is equally weighted.
E)all of the above.

Question

Quizplus · Accepted Answer

A well-diversified portfolio is one that is diversified over a large enough number of securities that the nonsystematic variance is essentially zero. Therefore, choice A is the correct answer. Choice B is not specific enough as it depends on the number of securities in each industry sector. Choice C is not relevant as beta is a measure of systematic risk, not diversification. Choice D implies equal weighting, which is not necessary for diversification, and is therefore not accurate. Choice E is incorrect as not all of the options listed are correct.

A Well-Diversified Portfolio Is Defined as