Which one of the following would indicate a portfolio is being effectively diversified?
A)An increase in the portfolio beta
B)A decrease in the portfolio beta
C)An increase in the portfolio rate of return
D)An increase in the portfolio standard deviation
E)A decrease in the portfolio standard deviation

Question

Quizplus · Accepted Answer

The decrease in portfolio standard deviation indicates that the portfolio is being effectively diversified because it means that the risk of the portfolio is being reduced by spreading it across different asset classes rather than having all investments in a single asset class. Therefore, E is the correct choice. An increase in the portfolio beta (A) or rate of return (C) could indicate that the portfolio is becoming more concentrated in a specific asset class or security, which increases risk rather than diversifying it. An increase in the portfolio standard deviation (D) also indicates an increase in risk, while a decrease in beta (B) alone does not necessarily indicate effective diversification.

Which One of the Following Would Indicate a Portfolio Is