The standard deviation of a portfolio will tend to increase when:
A)the portfolio concentration in a single cyclical industry increases.
B)one of two stocks related to the airline industry is replaced with a third stock that is unrelated to the airline industry.
C)a risky asset in the portfolio is replaced with U.S.Treasury bills.
D)the weights of the various diverse securities become more evenly distributed.
E)short-term bonds are replaced with Treasury Bills.

Question

Quizplus · Accepted Answer

When the portfolio concentration in a single cyclical industry increases, it becomes less diversified, leading to a higher standard deviation of the portfolio.

The Standard Deviation of a Portfolio Will Tend to Increase