Regarding Time-Series Second Moments of Periodic Investment Returns Data, Relevant

question 25

Multiple Choice

Regarding time-series second moments of periodic investment returns data, relevant to portfolio investment analysis:

• A) An asset's own return variance measures the asset's total risk and its covariance with a portfolio measures its potential contribution to the risk in that portfolio.
• B) An asset's covariance with the investor's portfolio measures the asset's total risk and its own return variance measures its potential contribution to the risk in that portfolio.
• C) An asset's own return variance represents the systematic component of risk that cannot be diversified away.
• D) Investor's should not care about an asset's covariance because it represents the component of risk that cannot be diversified away.

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Definitions:

Contribution Margin

The amount by which the sale of a product or service exceeds its variable costs, contributing to covering fixed costs and generating profit.