As the number of stocks in your portfolio increases
A)the variability in your portfolio increases.
B)the systematic risk in your portfolio increases.
C)the unsystematic risk in your portfolio increases.
D)none of the above.

Question

Quizplus · Accepted Answer

As the number of stocks in a portfolio increases, diversification reduces unsystematic risk (also known as diversifiable or specific risk), but systematic risk (market risk) remains unchanged. Therefore, the variability due to unsystematic risk decreases, not increases.

As the Number of Stocks in Your Portfolio Increases