Question

The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because the market portfolio: Multiple Choice has specific risk. offers lower returns. has less systematic risk. diversifies risk.

Answer 1

Answer:

has specific risk

Explanation:

Standard deviation is a measure of central tendency. It measures the variation of data from a central value. As such variables with high standard deviation have values far from the central value while standard deviation close to the central value is low.

So when individual stocks have higher standard deviation it means prices are less stable than that of market portfolio.

This can be attributed to them having specific risk. The market is not subject to diversification risk so prices tend to fluctuate less