The standard deviation of a portfolio will tend to increase when:
A) A risky asset in the portfolio is replaced with Treasury bills.
B) One of two stocks related to the airline industry is replaced with a third stock that is unrelated to the airline industry.
C) The portfolio concentration in a single cyclical industry increases.
D) The weights of the various diverse securities become more evenly distributed.
E) Short-term bonds are replaced with long-term bonds.

Question

Quizplus · Accepted Answer

Increasing the concentration in a single cyclical industry increases the portfolio's exposure to industry-specific risks, leading to higher volatility and standard deviation.

The Standard Deviation of a Portfolio Will Tend to Increase