If the returns on different assets are uncorrelated: an increase in the number o

Question

If the returns on different assets are uncorrelated:

an increase in the number of assets in a portfolio may bring the standard deviation of the portfolio close to zero.

there will be little gain from diversification.

diversification will result in risk averaging but not in risk reduction.

the expected return on a portfolio of such assets should be zero.

an increase in the number of assets in a portfolio may bring the standard deviation of the portfolio close to zero.

there will be little gain from diversification.

diversification will result in risk averaging but not in risk reduction.

the expected return on a portfolio of such assets should be zero.

Explanation / Answer

Answer : Option A is correct.If the assets are uncorrelated there is risk reduction and risk in finance implies standard deviation/variance.If we bring in our portfolio such assets are are really uncorrrelated then there is chance that the risk may turn out to be zero..

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