If the standard deviation of a diversified portfolio is 20% and if the stocks in that portfolio are positively correlated,then what would we expect the average standard deviation of stocks in that portfolio to be?

Question

Quizplus · Accepted Answer

When stocks in a portfolio are positively correlated, they move in the same direction and have a higher combined risk. This means that the average standard deviation of stocks in the portfolio would be expected to be greater than the standard deviation of the diversified portfolio, which is 20%.

If the Standard Deviation of a Diversified Portfolio Is 20