Volatility is a reasonable measure of risk for large portfolios, once it is fully diversified.

Question

Quizplus · Accepted Answer

Volatility, or the degree of fluctuations in an asset's price, is a good measure of risk for individual assets or small portfolios. However, once a portfolio is diversified with a mix of assets that have low correlations with one another, the portfolio's overall volatility is reduced. Therefore, in this context, volatility can be a reasonable measure of risk for large, diversified portfolios.

Volatility Is a Reasonable Measure of Risk for Large Portfolios