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If the standard deviation of a diversified portfolio is 20% and if the stocks in that portfolio are positively correlated, then what would we expect the average standard deviation of stocks in that portfolio to be? less than 20% 20% greater than 20% you would need to know the percentage of each stock invested in that portfolio to determine the answer None of the above
If the standard deviation of a diversified portfolio is 20% and if the stocks in that portfolio are positively correlated, then what would we expect the average standard deviation of stocks in that portfolio to be?
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less than 20% |
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20% |
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greater than 20% |
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you would need to know the percentage of each stock invested in that portfolio to determine the answer |
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None of the above |
Expert Solution
If securities in a portfolio are positively correlated but not perfectly correlated, then the weighted average of the standard deviation of the individual security will always be more than the standard deviation of the portfolio.
Hence if the standard deviation of portfolio is 20% then we would expect that the average standard deviation of stocks in that portfolio will be greater than 20%.
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