Select the true statement from among the following:
A) The risk for a portfolio is a weighted average of individual security risks.
B) Portfolio risk accounts for the correlation between securities in the portfolio as well as the proportion of each security in the portfolio.
C) Having established the portfolio weights, the calculation of the expected return depends on the calculation of portfolio risk.
D) When adding a security to a portfolio, the average covariance between it and the other securities is not important.

Question

Quizplus · Accepted Answer

Portfolio risk is determined not only by the proportion of each security within the portfolio but also by the correlation between the securities. This means that understanding how the prices of different securities move in relation to one another is crucial for assessing the overall risk of the portfolio.

Select the True Statement from Among the Following