3. Portfolio risk and diversification Aa Aa A financial planner is examining the

Question

3. Portfolio risk and diversification Aa Aa A financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standard deviation? O A portfolio consisting of about 30 randomly selected stocks A portfolio containing only Chevron stock A portfolio consisting of about 30 energy stocks Portfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stock's contribution to portfolio risk and its statistical relationship with the portfolio's other stocks. Based on your understanding of portfolio risk, identify whether each statement is true or false. Statement True False The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations A portfolio's risk is likely to be smaller than the average 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. O

Explanation / Answer

A portfolio consisting of about 30 randomly selected stoock from different sectors.

Financial Planning is the nothing but the process where we meet our life goals which can be buying a house, saving for future, and for children higher education, through proper management of ours finance.

The financial planning process consists of six step. The Financial planning process involves collection of all the financial information, setting a life goal, Examine what is the current financial status, bringing new strategies or plan for how to meet the goals

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