Question

Which of the following statements concerning the variance are correct? (note: there can be more than one correct answer)

Group of answer choices

a.The larger the variance, the greater the total risk of the investment.

b.If a stock portfolio is well diversified, then the portfolio variance may be less than the variance of the least risky stock in the portfolio.

c.The larger the variance, the smaller the standard deviation.

d.The larger the variance, the more the actual returns tend to differ from the average return.

e.The variance is the best measure of risk for an asset held in isolation.

Answer 1

The correct statements are:

a.The larger the variance, the greater the total risk of the investment.

b.If a stock portfolio is well diversified, then the portfolio variance may be less than the variance of the least risky stock in the portfolio.

d.The larger the variance, the more the actual returns tend to differ from the average return.

and

e.The variance is the best measure of risk for an asset held in isolation.

Variance is a meaure of risk anf higher the variance, higher will be the Standard Deviation

Variation represents difference in actual return than average return

Diversification reduces risk

Hence, all statements except c are correct