Keep the Higbest: S 3. Portfollio risk and dlversficatlon A finandal planner is examining the portfolos held by several of her dients. Which of the following portfolios is likely to have the smallest standard deviation? O A portfollio with 10 randomly selected intemational stocks O A portfolio with 10 randomly selected stocks from US and international markets O A partfolio with 10 randomly selected U.S stocks Portfolio managers pick stod fortheir 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 refationship with the portfolio's other stocks. Based on your understanding of portfolio risk, identify whether each statement is true or faise. Statement True False Because of the effects of diversification, the portfolio's risk is likely to be smaller than the average of all stockes' standard deviations The portfolio's risk is the welghted average of the individual stocks' standard deviations Portfolio risk will declinie if imre stocks that are negatively correlatod with other stocks areO added to the portfolio. The market risk component of the total portfolio risk can be reduced by randomly adding,' O stocks to the portfolio