A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio.It is this aspect of portfolios that allows investors to combine stocks and thus reduce the riskiness of their portfolios.

Question

Quizplus · Accepted Answer

A portfolio's risk is measured by its variance or standard deviation, but not simply by the weighted average of the standard deviations of the securities in the portfolio. Risk reduction in a portfolio is achieved through diversification, which depends on the correlation between the returns of the securities, not just their individual risks.

A Portfolio's Risk Is Measured by the Weighted Average of the Standard