Most of the risk-reduction benefits from diversification can be achieved in a portfolio consisting of
A) 5 to 10 shares
B) 10 to 15 shares
C) 15 to 20 shares
D) 20 to 25 shares

Question

Quizplus · Accepted Answer

According to modern portfolio theory, diversification benefits start to taper off at around 15 to 20 stocks. After this point, the added benefits of diversification become negligible as the portfolio nears full market diversification. Therefore, a portfolio consisting of 15 to 20 stocks is optimal for achieving risk-reduction benefits from diversification.

Most of the Risk-Reduction Benefits from Diversification Can Be Achieved