2. Portfolio expected return and risk A collection of financial assets and securitles is referred to as a portfolio. Most individuals and institutions invest in a portfolio, meking portfolio risk. analysis an integrol part of the fleld of finance. Just like stand-aione assets and securitios, portfolios are aiso exposed to risk, Portfolio riak refers to the possibility that an Investment portfollo will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfollo. Consider the following case: Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfollo are shown in the following table: What is the expected return on Andre's stock portfolio? Suppose each stock in Andret portfolio has a correlation coefficient of 0.40(=0.40) with each of the other stocks. The market's average atandord deviation is approximately 20%, and the welghted average of the risk of the Individual securities in the partially diversifled four.stock portfolio is 3994 . If 40 additional, randomly selected stocks with a correlation coefficient of 0.30 with the other stocks in the portfollo were added to the portfolio, what effect would this have on the portfolio's standard deviation (p) ? It would stay constant at 39%0. It would gradually settle at about 35%. It would gradually settle at approximately 50% i It would grodually settie at approximately 20%