Question

You are considering adding a new security to your portfolio. To decide whether you should add the security, you need to know the security's:
I. Expected return
II. Standard deviation
III. Correlation with your portfolio


- I only
- I and II only
- I and III only
- I, II, and III

Answer 1

Answer:

The correct answer is letter "D": I, II, and III.

Explanation:

Portfolios are pools of assets that allow small investors to access to diversified investment vehicles managed by professionals. Adding new securities to a portfolio requires knowledge of the asset:

• Expected return: returns expected from an investment given the investment's historical returns.
• Standard deviation: measure applied to the annual rate of return of the investment to measure the volatility of the investment.
• Correlation: statistical measurement of how two securities move in relation to each other.