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 shares related to the airline industry is replaced with a third share 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 reduces diversification, which can increase the portfolio's standard deviation due to higher exposure to industry-specific risks.

The Standard Deviation of a Portfolio Will Tend to Increase