As We Add More Uncorrelated Stocks to a Portfolio Where

question 101

Multiple Choice

As we add more uncorrelated stocks to a portfolio where the stocks are held in equal weights, the benefit of diversification is most dramatic ________.

• A) after 20 stocks have been added
• B) when there are more than 500 stocks
• C) when there are more than 1,000 stocks
• D) at the outset

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Definitions:

Homoscedasticity

A condition in which the variance within a dataset remains constant across different levels of an independent variable.

Error Variable

A variable in statistical models that captures the difference between observed and predicted values.

Variance

A measure of the spread of a set of numbers, indicating how much the individual numbers differ from the mean.

Regression Analysis

A set of statistical processes for estimating the relationships among variables, focusing primarily on the dependence of a response variable on one or more explanatory variables.