Which one of the following would tend to indicate that a portfolio is being effectively diversified?
A) An increase in the portfolio beta.
B) A decrease in the portfolio beta.
C) An increase in the portfolio rate of return.
D) An increase in the portfolio standard deviation.
E) A decrease in the portfolio standard deviation.

Question

Quizplus · Accepted Answer

A decrease in the portfolio standard deviation indicates effective diversification because it suggests that the portfolio's overall risk is being reduced through the combination of different investments, which is a key goal of diversification.

Which One of the Following Would Tend to Indicate That