Suppose you hold a portfolio consisting of a single stock. About how many more stocks would you need to add to your portfolio in order to reduce its average annual variability to about the level of average annual variability you would experience if you held a portfolio consisting of every stock listed on the New York Stock Exchange?
A)1
B)20
C)1000
D)10,000

Question

Quizplus · Accepted Answer

Adding about 20 stocks to a portfolio can significantly reduce unsystematic risk, bringing the portfolio's variability closer to the market's overall variability, which is represented by a diversified portfolio like one consisting of all stocks on the NYSE.

Suppose You Hold a Portfolio Consisting of a Single Stock