Portfolio managers pick stocks for their clients’ portfolios based on the investment objective of the portfolio and several othe
r factors. One key consideration is each stock’s contribution to portfolio risk and its statistical relationship with the portfolio’s other stocks. Based on your understanding of portfolio risk, identify whether each statement is true or false.
1 answer:
Answer:
- False
- True
- True
- False
Explanation:
First one is false because diversification reduces risk because it divides the risk amongst different securities. The portfolio risk will therefore be lower than the average of all stocks' standard deviations.
Second one is true because unsystematic risk is risk that will come with the type of stock or security purchased. It is usually referred to as diversifiable risk because using negatively correlated stocks can help diversify this risk.
Third one is True because the portfolio's risk when diversified is indeed likely to be smaller than the average of all stocks' standard deviation.
Fourth one is false because portfolio risk is <em>reduced</em> if stock that are negatively correlated are put into a portfolio because it means that when one stock is not doing so well, the other being negatively correlated, will be doing fine.
You might be interested in
Answer:
A change in quantity demanded is caused by a change in price only. That is, when price rises quantity demanded falls vise versa
A change in demand occurs when there is a shift in the demand caused by a change in other determinates of demand other than price such as change in income, change in taste and fashion, demographic changes etc.
Explanation:
Real word example of change in demand :
Changing Tastes or Preferences
From 1990 to 2020, the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef.
Simply put it this way> Change in quantity demanded : Price change, quantity demanded change
Change in Demand: Price doesn't change but quantity demanded changes as a result of change in other determinates of demand examples the change in preference
