Which of the following is true regarding the standard deviation for a portfolio?
A) The portfolio's standard deviation must be less than the individual standard deviations.
B) The standard deviation of the portfolio falls continuously as more assets are added.
C) The standard deviation for a portfolio is a weighted average of individual standard deviations.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio is not necessarily less than the individual standard deviations of the assets within it (A is incorrect), does not continuously fall as more assets are added (B is incorrect), and is not calculated as a simple weighted average of individual standard deviations (C is incorrect). Instead, it depends on the correlation between the returns of the assets in the portfolio and their individual weights.

Which of the Following Is True Regarding the Standard Deviation