Portfolio A has but one security, while Portfolio B has 100 securities. Because of diversification, we know that Portfolio B will have the lower market risk; that is, Portfolio B will have the lower beta.

Question

Quizplus · Accepted Answer

Market risk, measured by beta, is related to the systematic risk of the market, not the number of securities in a portfolio. Diversification reduces unsystematic risk, but it does not necessarily lower the beta of a portfolio.

Portfolio a Has but One Security, While Portfolio B Has