What should you expect to happen if you randomly select stocks and add them to your portfolio?
A)This will reduce the portfolio's unsystematic, or diversifiable, risk.
B)This will increase the portfolio's expected rate of return.
C)This will reduce the portfolio's beta coefficient and thus its systematic risk.
D)This will have no effect on the portfolio's risk.

Question

Quizplus · Accepted Answer

By randomly selecting stocks and adding them to your portfolio, you are engaging in diversification, which reduces unsystematic risk. This is because unsystematic risk is specific to individual stocks and can be mitigated by holding a variety of stocks from different industries or sectors.

What Should You Expect to Happen If You Randomly Select