A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of finance. Just like standalone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.

Consider the following case: Felix is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:

Stock	Percentage of Portfolio	Expected Return	Standard Deviation
Artemis Inc.	20%	6.00%	23.00%
Babish & Co.	30%	14.00%	27.00%
Cornell Industries	35%	12.00%	30.00%
Danforth Motors	15%	5.00%	32.00%

The expected return on Felix's stock portfolio is

7.7625%

10.35%

15.52%

13.9725%

Suppose each stock in the preceding portfolio has a correlation coefficient of 0.4 with each of

the other stocks. If the weighted average of the risk (standard deviation) of

the individual securities in the partially diversified portfolio of four stocks

is 28%, the portfolio's standard deviation most likely is (MORE) (EQUAL)

(LESS) ??? then 28%.