If the Standard Deviation of a Diversified Portfolio Is 20

question 63

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:

Depreciation

The accounting method of allocating the cost of a physical or tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

EBIT

A financial metric that calculates a company's profit by including all costs except for interest and income tax expenses, known as Earnings Before Interest and Taxes.

Free Cash Flow

The amount of cash a company generates after accounting for capital expenditures needed for operations. It is an important measure of financial performance and liquidity.

Capital Expenditures

Long-term investments made by a company in buildings, equipment, or other assets to improve or maintain its business operations.