Because of portfolio effect, the most significant factor related to the risk of any investment is:
A)its standard deviation, or degree of uncertainty.
B)its effect on the risk of the portfolio.
C)systematic risk associated with the investment.
D)None of the above

Question

Quizplus · Accepted Answer

The portfolio effect suggests that the risk of an individual investment can be reduced by adding it to a well-diversified portfolio. Therefore, the most significant factor related to the risk of any investment is its effect on the risk of the portfolio as a whole. Standard deviation and systematic risk associated with the investment are also important factors but their impact on the overall portfolio risk should be considered.

Because of Portfolio Effect, the Most Significant Factor Related to the Risk