The variance of a portfolio does not depend on:
A)the proportion of the current market value of the portfolio constituted by each security.
B)the variance of the possible returns of each security.
C)the total market value of the portfolio.
D)the correlation between possible returns on the securities held in the portfolio.

Question

Quizplus · Accepted Answer

The variance of a portfolio is solely based on the securities' variances and the correlation between them. The total market value of the portfolio does not affect the variance because it is a ratio of the weighted sum of the securities' variances and correlations. Therefore, the proportion of the current market value of the portfolio and the variance of the potential returns of each security affect the portfolio's variance.

The Variance of a Portfolio Does Not Depend On