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With some algebra and assumptions, the variance of an N-asset portfolio can be written as: P2=N2+NN1Cov where 2 is the average variance of stocks in

With some algebra and assumptions, the variance of an N-asset portfolio can be written as: P2=N2+NN1Cov 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? Firm-specific risk converges to 2 Total risk converges to 0 Systematic risk converges to Cov Firm-specific risk converges to 1

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