The most import 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) Choices a and
E) All of the above are equally important.

Question

Quizplus · Accepted Answer

The correlation of the new investment with the portfolio is the most important criteria as it measures the degree to which the new investment moves in relation to the existing investments in the portfolio. A low correlation can help diversify the portfolio and reduce risk while a high correlation can increase risk. Expected return and standard deviation are also important, but they must be evaluated in conjunction with the correlation to determine the impact on the overall portfolio.

The Most Import Criteria When Adding New Investments to a Portfolio