A portfolio consisting of every stock traded on the New York Stock Exchange would have
A)diversified away all risk.
B)diversified away idiosyncratic risk.
C)diversified away market risk.
D)much more risk than a portfolio containing only a few stocks.

Question

Quizplus · Accepted Answer

By holding every stock traded on the New York Stock Exchange, the portfolio would have effectively diversified away idiosyncratic risk, which is the risk specific to individual companies. However, it would not have diversified away market risk, which affects all stocks and cannot be eliminated through diversification. Therefore, option B is the correct choice. Option A is incorrect because even a portfolio with every stock would still be subject to market risk. Option C is incorrect for the same reason. Option D is incorrect because diversification generally reduces the overall risk of a portfolio, so holding more stocks would generally reduce risk compared to holding fewer stocks.

A Portfolio Consisting of Every Stock Traded on the New