An asset with a large standard deviation of returns can lower portfolio risk if its returns are uncorrelated with the returns on the other assets in the portfolio.

Question

Quizplus · Accepted Answer

An asset with a large standard deviation of returns can add diversification benefits to a portfolio if its returns are uncorrelated with the returns on the other assets in the portfolio. This is because it would provide a different pattern of returns and potentially offset losses in other investments. However, if the asset's returns are highly correlated with the returns of the other assets in the portfolio, it can actually increase the overall risk of the portfolio.

An Asset with a Large Standard Deviation of Returns Can