Question

In a portfolio of two different investments, the overall riskiness of the portfolio, at least in theory, could be less than the risk inherent in either of the individual assets if they were held in isolation.
Select one:
a. True
b. False

Answer 1

Answer:

a.True

Explanation:

The objecting of creating a portfolio is to diversify the investment as the proverb says, "do not put all the eggs in the same basket."

When a portfolio is created, rather than putting all the money in a single stock, stocks of different companies or industries can be purchased wherein the chances of earning a higher return increase and at the same time, the risk is spread over several securities.

It means if one stock incurs a loss it can be offset by profit from another stock which reduces the risk an investor is exposed to.

Thus, the given statement is true.