Because of portfolio effect, the most significant factor related to the risk of any investment is its:
A)standard deviation
B)coefficient of variation
C)effect on the risk of the portfolio
D)unsystematic risk

Question

Quizplus · Accepted Answer

The portfolio effect states that the risk of an investment depends on how it affects the risk of the portfolio as a whole, rather than just its own individual risk. Therefore, the most significant factor related to the risk of any investment is its effect on the risk of the portfolio. Standard deviation and coefficient of variation are measures of a security's individual risk and do not take into account their impact on the overall risk of the portfolio. Unsystematic risk is unique to a specific security and can be diversified away by investing in a portfolio of securities.

Because of Portfolio Effect, the Most Significant Factor Related to the Risk