With some algebra and assumptions, the variance of an N-asset portfolio can be written as:

P2=2N+N1NCov

where ² is the average variance of stocks in the portfolio and Cov is the average covariance between each pair of stocks in the portfolio. Based on this result, which of the following will happen in a sufficiently well-diversified portfolio?

Group of answer choices

Systematic risk converges to Cov

Firm-specific risk converges to 1

Firm-specific risk converges to ²

Total risk converges to 0