Which of the following statements regarding portfolio risk and number of stocks is generally true?
A)Adding more stocks increases risk
B)Adding more stocks decreases risk but does not eliminate it
C)Adding more stocks has no effect on risk
D)Adding more stocks increases only systematic risk

Question

Quizplus · Accepted Answer

Adding more stocks can decrease risk through diversification, but it does not eliminate risk completely. The reduction in risk is more prominent with smaller numbers of stocks, while the benefits of diversification start to diminish as the number of stocks in the portfolio increases beyond a certain point.

Which of the Following Statements Regarding Portfolio Risk and Number