As diversification increases, the total variance of a portfolio approaches: A. 0 B. the variance of...

As diversification increases, the total variance of a portfolio approaches:

A. 0

B. the variance of the risk free asset

C. 1

D. infinity

E. None of the options are correct

Expert Solution

Ans E. None of the options are correct

As diversification increases, the total variance of a portfolio approaches the variance of the market portfolio. Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio consists of distinct asset and investment types.

jeff jeffy answered 2 years ago

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It is prudent for the portfolio manager to engage international portfolio diversification”. In terms of this...

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Efficient diversification was discussed in Chapter 6. Diversification in an investment portfolio is a significant concept...

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