If the Standard Deviation of a Diversified Portfolio Is 20

question 18

Multiple Choice

If the standard deviation of a diversified portfolio is 20% and if the stocks in that portfolio are positively correlated,then what would we expect the average standard deviation of stocks in that portfolio to be?

• A) less than 20%
• B) 20%
• C) greater than 20%
• D) you would need to know the percentage of each stock invested in that portfolio to determine the answer

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Definitions:

Stimulates Controversy

Provokes debate or disagreement on a specific topic due to differing opinions, beliefs, or interests among individuals or groups.

Diffusion Of Responsibility

The ability of group members to share the burden of the negative consequences of a poor decision.

Risky Shifts

Risky shift phenomenon observes that groups tend to make decisions that are riskier than the individual decisions of group members due to the diffusion of responsibility and group influence.

Unambiguous Decisions

Decisions that are clear and definite, leaving no doubt or room for multiple interpretations.