We Can Reduce Volatility by Investing in Less Than Perfectly

question 86

Multiple Choice

We can reduce volatility by investing in less than perfectly correlated assets through diversification because the expected return of a portfolio is the weighted average of the expected returns of its stocks,but the volatility of a portfolio:

• A)is higher than the weighted average volatility.
• B)is independent of weights in the stocks.
• C)is less than the weighted average volatility.
• D)depends on the expected return.
• E)is the same as the weighted average volatility.

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Definitions:

Glycolysis

The metabolic pathway that converts glucose into pyruvate, generating ATP and NADH without the need for oxygen.

NADH

A coenzyme found in all living cells that is produced during glycolysis and used as an electron carrier in the process of cellular respiration.

FADH2

A redox cofactor involved in cellular respiration, acting as a carrier of electrons to the electron transport chain.

Alcoholic Fermentation

A biological process by which sugars such as glucose, fructose, and sucrose are converted by yeast or bacteria into cellular energy, producing ethanol and carbon dioxide as side products.