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A financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standard
A financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standard deviation A portfolio with 10 randomly selected stocks from U.S. and international markets. A portfolio with 10 randomly selected international stocks. A portfolio with 10 randomly selected U.S. stocks. Portfolio managers pick stocks for their clients' 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. 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 the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the following case: Andre 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: What is the expected return on Andre's stock portfolio? 13.50%7.50%10.00%15.00% Suppose each stock in Andre's portfol ation coefficient of 0.4(=0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measur andard deviations) included in the partially diversified four-stock portfolio is 31%, the portfolio's standard deviation (p) most likely is 31%
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