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4. Portiolio risk and diversification A financal planner is examining the portfolios held by several of her dients. Which of the following portfolios is likely
4. Portiolio risk and diversification A financal planner is examining the portfolios held by several of her dients. Which of the following portfolios is likely to have the smallest standard deviation? A portfolio consisting of about 30 energy stocks. A portfolio containing only Chevron stock. A portfolio consisting of about 30 randomly selected stocks: Portfolio managers pick stods for their dients' portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stock's contribution to portfolio risk and its statistical relationship with the portfolio's other stocks: Based on your understanding of portfolio nisk, wdentify whether each statement is true or false. Because of the effects of diversificabon, the portfolios risk is likely to be more than the average of all stock' standard devistions. The unsystemabc risk component of the total portfollo risk can be reduced by adding negatively correlated stodss to the portfolio. A portfdos riskis likofy to be smaller than the average of all stocks' standard deviations, because diversification lowers the pottolio's nsk. Portfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the portfodio
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