Which two factors have the greatest effect on the degree of risk reduction?
A) The extent of statistical interdependency between the returns on different investments
B) The number of securities in the portfolio
C) The expected return on the constituent investments
D) The total return on the investments

Question

Quizplus · Accepted Answer

The extent of statistical interdependency between the returns on different investments and the number of securities in the portfolio have the greatest effect on the degree of risk reduction. Diversifying across uncorrelated assets can greatly reduce overall portfolio risk, and increasing the number of securities in a portfolio can also help to reduce specific risk. The expected return on the constituent investments and the total return on the investments may affect portfolio performance but do not necessarily have the greatest effect on risk reduction.

Which Two Factors Have the Greatest Effect on the Degree