The distributions of rates of return for Companies AA and BB are given below:
We can conclude from the above information that any rational, risk-averse investor would be better off adding Security AA to a well-diversified portfolio over Security BB.

Question

Quizplus · Accepted Answer

The decision to add Security AA or BB to a portfolio depends on the risk-return profile of each security and how they correlate with the existing portfolio, not just their individual distributions of rates of return.

The Distributions of Rates of Return for Companies AA and BB