Identifying the risk contribution of an asset to a portfolio is more difficult than identifying its return contribution because
A)Risk does not always increase when you add assets to a portfolio.
B)Risk,unlike return,is not additive.
C)Risk is a property of portfolios,not one of individual assets.
D)Some assets have no risk.

Question

Quizplus · Accepted Answer

Return contribution of an asset can easily be calculated by multiplying the asset's weight in the portfolio by its expected return. However, risk contribution of an asset is not solely based on its weight in the portfolio. The correlation between the asset and other assets in the portfolio also affects its risk contribution. The risk of a portfolio is not a simple sum of risks of individual assets, making it challenging to identify an asset's risk contribution. Hence, option B is the correct answer.

Identifying the Risk Contribution of an Asset to a Portfolio