Ask Question
24 April, 09:02

A portfolio's risk is not equal to the weighted average of the individual stocks' standard deviations. When returns on Stock A increase, returns on Stock B also increase. In general, this would mean that Stocks A and B are positively correlated. The risk in a portfolio will increase if more stocks that are negatively correlated with other stocks are added to the portfolio.

+1
Answers (1)
  1. 24 April, 09:21
    0
    The risk in a portfolio will decrease if stocks with negative correlation are added to the portfolio as both the stocks prices will move in opposite directions therefore decreasing the risk of both stocks pricing to decrease at the same moment. Adding Negatively co related stocks to the portfolio is the best way to reduce risk and increase diversification.

    The total risk of the portfolio can be calculated by calculating the co variances of all its stocks.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A portfolio's risk is not equal to the weighted average of the individual stocks' standard deviations. When returns on Stock A increase, ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers