Assume That You Own a Portfolio with a Known Average

question 150

Multiple Choice

Assume that you own a portfolio with a known average return and standard deviation. Which of the following stocks, if added to your portfolio, will not reduce its risk through diversification?

• A)A stock whose return is negatively correlated with that of your portfolio and has a lower standard deviation.
• B)A stock whose return is positively correlated with that of your portfolio and has a lower standard deviation.
• C)A stock whose return is positively correlated with that of your portfolio and has a higher standard deviation than your stock.
• D)All of the above will reduce the risk of your investment through diversification.
• E)None of the above will reduce the risk of your investment through diversification.