Afinancial planner is examining the portfolios held by several of her clients. which of the following portfolios is likely to have the smallest standard deviation

a. portfolio with 10 randomly selected international stocks

b a portfolio with 10 randomly selected stocks from us and international markets

c. a portfolio with 10 randomly selected us stocks

based on your understanding of portfolio risk, identify whether each statement is true or false

a portfolio's risk is likely to be smaller than the average of all stocks standard diversification because diversification lowers the portfolio's risk
because of the effects of diversifications, the portfolio's risk is likely to be more than the average of all stocks standard deviations

portfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the porfolio
the unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio

A portfolio with 10 randomly selected US stocks will have the lowest standard deviation because all US stocks will have some form of co relation and move to some extent in the direction of the US market but international stocks will have very high standard deviations as they all are more likely to move in different directions.

A portfolio's risk is likely to be smaller than the average of all stocks standard diversification because diversification lowers the portfolio's risk

This statement is false because a portfolios risk can be both higher or lower than the average of all stocks because if the stocks have a negative co relation portfolios risk will be lower than the average of all Standard deviations and vice versa.

Portfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the portfolio

This statement is False because portfolio risk will decrease if more stocks that are negatively correlated added to the portfolio.

The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio

This statement is true because unsystemeatic risk is Diversifiable risk.

Explanation:

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