The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because individual stocks:
A) offer higher returns.
B) have more systematic risk.
C) have no diversification of risk.
D)do not have unique risk.

Question

Quizplus · Accepted Answer

Individual stocks generally have higher standard deviations than the market portfolio because they lack diversification. Diversification helps in spreading out risk across different assets, thereby reducing the overall risk of the portfolio. Individual stocks do not benefit from this risk reduction through diversification, making their standard deviations higher in comparison.

The Standard Deviations of Individual Stocks Are Generally Higher Than