The reduction in standard deviation from a well diversified portfolio of 100 stocks will ______________ than that of a 200 stock portfolio.
A) not be statistically significantly different
B) be statistically significantly different
C) equal to
D) None of the options are correct

Question

Quizplus · Accepted Answer

The reduction in standard deviation from a well-diversified portfolio tends to diminish as more stocks are added. Beyond a certain point, adding more stocks (e.g., going from 100 to 200) does not significantly reduce risk due to the law of diminishing marginal returns on diversification.

The Reduction in Standard Deviation from a Well Diversified Portfolio