The most important criteria when adding new investments to a portfolio is the
A) expected return of the new investment.
B) standard deviation of the new investment.
C) correlation of the new investment with the portfolio.
D) selection of the risk-free asset.
E) variance of the risk-free asset.

Question

Quizplus · Accepted Answer

The most important criteria when adding new investments to a portfolio is the correlation of the new investment with the portfolio. This is because the goal is to diversify the portfolio and reduce portfolio risk. If the new investment has a low or negative correlation with the current portfolio, it can potentially reduce overall portfolio risk. Expected return and standard deviation are also important factors to consider, but they are not as critical as correlation. The selection of the risk-free asset and its variance are also important, but they are not directly related to adding new investments to a portfolio.

The Most Important Criteria When Adding New Investments to a Portfolio