What does the Treynor measurement measure? "The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model" The degree to which the portfolio is optimally diversified An investor s reward in proportion to their assumption of systematic risk How much reward an investor is getting for each unit of risk assumed Why does diversification reduce overall portfolio risk? "Diversifiable risk factors are enhanced by the combination of stocks in a portfolio, resulting in an overall reduction of risk." Combining stocks in a portfolio will result in the portfolio s standard deviation being brought down to the average standard deviation. The combination of stocks in a portfolio will reduce the overall portfolio beta. "The correlation coefficients of the individual stocks will cancel themselves out, leaving a portfolio with a lower standard deviation than the individual stocks standard deviations." What does the Treynor measurement measure? "The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model" The degree to which the portfolio is optimally diversified An investor s reward in proportion to their assumption of systematic risk How much reward an investor is getting for each unit of risk assumed Why does diversification reduce overall portfolio risk? "Diversifiable risk factors are enhanced by the combination of stocks in a portfolio, resulting in an overall reduction of risk." Combining stocks in a portfolio will result in the portfolio s standard deviation being brought down to the average standard deviation. The combination of stocks in a portfolio will reduce the overall portfolio beta. "The correlation coefficients of the individual stocks will cancel themselves out, leaving a portfolio with a lower standard deviation than the individual stocks standard deviations