- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 53. Portfolio Risk and Return: Part II
- Subject 2. Pricing of Risk and Computation of Expected Return
CFA Practice Question
By adding stocks that are less than perfectly correlated with existing stocks in a portfolio, you ______
A. can eliminate all variability.
B. will retain market risk.
C. can eliminate variability due to macroeconomic factors.
Explanation: Adding stocks that are less than perfectly correlated with existing stocks in a portfolio will diversify away some, but not all, unsystematic risk. However, market or systematic risk will not be diversified away.
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