Factor risk is not diversifiable in the context of a portfolio because:
A) the portfolios with approximately equal weight on all securities have residuals with standard deviations that are approximately directly proportional to the square root of the number of securities.
B) when more securities are added to the portfolio,the total risk of the portfolio will be the cumulative risk of the individual securities.
C) the portfolios with different weights on all securities have residuals with standard deviations that are approximately inversely proportional to the square root of the total market capitalization.
D) the returns due to each factor?s realized values are perfectly correlated across securities.
Correct Answer:
Verified
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