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Business, 19.06.2020 20:57 merunikitty1226

Suppose each stock in Avery’s portfolio has a correlation coefficient of 0.40 (rho = 0.40) with each of the other stocks. The market’s average standard deviation is approximately 20%, and the weighted average of the risk of the individual securities in the partially diversified four-stock portfolio is 33%. If 40 additional, randomly selected stocks with a correlation coefficient of 0.30 with the other stocks in the portfolio were added to the portfolio, what effect would this have on the portfolio’s standard deviation ( σp )? It would gradually settle at approximately 50%. It would gradually settle at approximately 20%. It would decrease gradually, settling at about 0%. It would gradually settle at about 35%.

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Suppose each stock in Avery’s portfolio has a correlation coefficient of 0.40 (rho = 0.40) with each...
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