Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?

a) adding more such stocks will reduce the portfolios unsystematic, diversifiable, risk.

b) adding more such stock will increase the portfolios expected rate of return.

c) adding more such stocks will have no effect on the portfolios risk.

d) adding more such stock will reduce the portfolios beta coefficient and thus its systematic risk.

Question

Jaida Hunt

Business

23 May, 09:20

Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?

a) adding more such stocks will reduce the portfolios unsystematic, diversifiable, risk.

b) adding more such stock will increase the portfolios expected rate of return.

c) adding more such stocks will have no effect on the portfolios risk.

d) adding more such stock will reduce the portfolios beta coefficient and thus its systematic risk.

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Answers (1)

Know the Answer?

Misael · Answer 1

The correct answer is letter "D": adding more such stock will reduce the portfolios beta coefficient and thus its systematic risk.

Explanation:

The Beta coefficient portraits the volatility of a stock according to the movements of the overall market. It gauges the systematic risk of a portfolio according to what is happening in the stock market. In that sense, by adding stocks randomly without studying the performance of the ticker, it will decrease the reliability of the return strategy chosen for the portfolio, which will reduce immediately the beta coefficient.