The Pooling of Risk Is a _____ Form of Diversification

question 41

Multiple Choice

The pooling of risk is a _____ form of diversification that produces a payoff with a very _____ risk.

• A)weak;large
• B)weak;small
• C)strong;large
• D)strong;small

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Definitions:

Beta

A means to evaluate the fluctuation, or inherent risk, of a security or portfolio against the aggregate market.

S&P 500 Index

A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States, often used as a benchmark for the overall market.

Risk-Adjusted Return

A measure of the return on an investment relative to the risk taken, often used to compare the performance of investment options.

Sharpe Measure

An alternative term for the Sharpe Ratio, providing an assessment of an investment's risk-adjusted return by calculating the excess return per unit of risk.