CFA Practice Question

There are 294 practice questions for this study session.

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
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