The risk on a portfolio of assets:
A) is different from the risk on the market portfolio.
B) is not influenced by the risk of individual assets.
C) is different from the risk of individual assets.
D) is negatively correlated to the risk of individual assets.

Question

Quizplus · Accepted Answer

The risk of a portfolio of assets is different from the risk of individual assets, as diversification can reduce the overall risk through the combined effect of the different asset classes. The risk of the portfolio is influenced by the correlation between the assets, the diversification, and the weight of each asset in the portfolio. The risk on the market portfolio may be used as a benchmark to compare the risk of a portfolio, but it is not the same as the risk of a portfolio. Therefore, A and B are incorrect. It cannot be concluded that the risk of the portfolio is negatively correlated to the risk of individual assets in general, so D is also incorrect.

The Risk on a Portfolio of Assets