The volatility of Home Depot Share prices is 30% and that of General Motors shares is 30%.When I hold both stocks in my portfolio and the stocks returns have zero correlation,the overall volatility of returns of the portfolio is:
A)unchanged at 30%.
B)less than 30%.
C)more than 30%.
D)zero.
E)Cannot say for sure

Question

Quizplus · Accepted Answer

When two assets in a portfolio have zero correlation, the overall volatility of the portfolio is reduced due to diversification benefits. This means the combined risk (volatility) of holding both stocks is less than the individual risk of holding each stock separately, assuming both stocks have the same volatility of 30%.

The Volatility of Home Depot Share Prices Is 30% and That