As we add more uncorrelated stocks to a portfolio where the stocks are held in equal weights, the benefit of diversification is most dramatic ________.
A) after 20 stocks have been added
B) when there are more than 500 stocks
C) when there are more than 1,000 stocks
D) at the outset

Question

Quizplus · Accepted Answer

The benefit of diversification is most dramatic at the outset because initially, adding more uncorrelated stocks significantly reduces the portfolio's overall risk. As more stocks are added, the marginal benefit of adding each additional stock decreases, making the initial additions the most impactful in terms of risk reduction.

As We Add More Uncorrelated Stocks to a Portfolio Where