Diversification and risk

The following graph plots the relationship between risk, calculated as the standard deviation of the return of a stock portfolio, and the number of

different stocks the portfolio contains for some imaginary stock market.

True or False: Increasing the number of stocks in a portfolio reduces market risk.

True

False

Consider two stock portfolios. Portfolio $Y$ consists of $20$ different stocks from firms in different industries. Portfolio $x$ consists of $10$ different stocks,

also from firms in different industries. The return on Portfolio $Y$ is likely to be

volatile than that of Portfolio $x.$

Suppose a stock analyst recommends buying stock in the following companies:

Each of the following portfolios contains stock picks from four of the listed companies. Which of the portfolios is the most diversified?

Horizon, Jackson & Jackson, Generic Motors, Citron

Jackson & Jackson, Walreds, Edides, Athena

Edides, Athena, Citron, Zahoo

Jackson & Jackson, Fizzer, Bazer, Walreds