- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 53. Portfolio Risk and Return: Part II
- Subject 3. The Capital Asset Pricing Model
CFA Practice Question
In the Markowitz model, portfolio risk ______
A. is equal to the weighted sum of the standard deviations of each of the securities in the portfolio.
B. can be greater than the simple weighted average of the risks of the individual securities in the portfolio.
C. does not depend on the relative weights of the securities in the portfolio.
Explanation: Portfolio risk is not just equal to the simple weighted average of the risks of the individual securities in the portfolio. It is also necessary to consider the covariances (or correlations) among the returns of the assets in the portfolio.
User Contributed Comments 2
| User | Comment |
|---|---|
| chunkychen | covariances can be negative... |
| santibanez | Chunkychen you meant positive. ..adding up assets to the portfolio increases total porfolio risk |