Question

Which of the following statements is CORRECT?

a. If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.
b. A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.
c. A two-stock portfolio will always have a lower beta than a one-stock portfolio.
d. A stock with an above-average standard deviation must also have an above-average beta.
e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

Answer 1

e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

Step-by-step explanation:

e. A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.