A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio?
A)100% stocks
B)100% bonds
C)50/50 mix of stocks and bonds
D)30% stocks and 70% bonds
E)30% bonds and 70% stocks

Question

Quizplus · Accepted Answer

The minimum variance portfolio is the portfolio with the lowest possible level of risk or volatility given a certain expected return level. Generally, adding uncorrelated or negatively correlated assets to a portfolio can result in lower overall portfolio volatility. In this case, the 30% stocks and 70% bonds portfolio is likely to have the lowest volatility as stocks and bonds are typically negatively correlated. Therefore, portfolios with a mix of stocks and bonds are likely to have lower volatility than portfolios invested solely in stocks or bonds. A 100% bond portfolio would also have low volatility, but it would likely have a lower expected return than a portfolio with some stocks.

A Portfolio Comprised of Which One of the Following Is