In a portfolio, risk is evaluated in a different way than with an individual project. In evaluating portfolio risk we

Question

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When evaluating portfolio risk, we need to consider the impact of each project on the overall risk of the firm (A). We also need to recognize that a risky investment may create a portfolio with less risk, as long as its returns are not highly correlated with the returns of other projects in the portfolio (B). Therefore, we need to consider how the returns of the projects in the portfolio are correlated (C). All of these statements are true, hence the correct answer is D.

In a Portfolio, Risk Is Evaluated in a Different Way