If portfolio weights are positive (i.e., you cannot borrow money): 1) Can the standard deviation of a portfolio ever be less than the smallest standard

If portfolio weights are positive (i.e., you cannot borrow money): 1) Can the standard deviation of a portfolio ever be less than the smallest standard deviation of an individual security in the portfolio? 2) Can the standard deviation of a portfolio ever be more than the greatest standard deviation of an individual security in the portfolio?

• 1) yes: 2(yes

• 1) yes: 2) no

• 1) no: 2) no

• 1) no: 2) yes

Expert Solution

The correct answer is

A. 1) YES 2) YES

Explanation:

it is true that the a standard deviation of portfolio can ever be less than the smallest deviation of an Individual security if the portfolio is well diversified.

And expected return of portfolio can ever be more than the greatest standard deviation of an individual security.

Hence option A is the correct answer.

Junaid answered 2 years ago

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