Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

Question

Quizplus · Accepted Answer

Adding stocks with higher standard deviations to a portfolio does not necessarily increase the portfolio's risk if the stocks are not perfectly correlated with the portfolio. Diversification can actually reduce overall portfolio risk if the added stocks have low or negative correlations with the existing portfolio.

Adding Stocks with Higher Standard Deviations to a Portfolio Will