Which one of the following indicates 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

The decrease in the portfolio standard deviation indicates effective diversification. The standard deviation measures the volatility of the portfolio's returns, and a lower standard deviation indicates that the portfolio's returns are more stable and less risky. A decrease in the portfolio beta or an increase in the portfolio rate of return do not necessarily indicate effective diversification, as these factors can be influenced by factors other than diversification.

Which One of the Following Indicates a Portfolio Is Being