Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the portfolio. 4. Portfolio expected return and risk Aa Aa A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions inves 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 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: Percentage of Expected Standard Stock Portfolio Return Deviation Artemis Inc. 20% 8.00% 37.00% Babish & Co. 30% 14.00 % 41.00% Cornell Industries 35% 11.00% 44.00% Danforth Motors 15% 5.00% 46.00 % Wh noctodroburno Andale ctocl ntfollia2