When we combine stocks in a portfolio, the amount of risk that is eliminated depends on the degree to which the stocks face common risks and move together.

Question

Quizplus · Accepted Answer

Combining stocks in a portfolio can help diversify risk, but the extent to which risk is reduced depends on whether the stocks face common risks and move together. If they are highly correlated, then the portfolio may not provide as much risk reduction as expected. Therefore, the statement is true.

When We Combine Stocks in a Portfolio, the Amount of Risk