Question

A financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standard deviation? A portfolio containing only Microsoft stock A portfolio consisting of about three randomly selected stocks from different sectors A portfolio containing Microsoft, Apple, and Google stock

Answer 1

Answer:

The answer is a Portfolio consisting of about three randomly selected stocks from a different sectors.

Explanation:

  Portfolio risk is a chance that the combination of assets or units, within the investments that an individual owns, fail to meet financial objectives. Portfolio risk will decline if more stocks that are negatively correlated with other stocks are added to the portfolio, and because of the effective diversification, the portfolio's risk is likely to be smaller than the average of all stocks's standard deviation.