Question

According to Markowitz, the purpose for holding a portfolio of assets is: (select all that apply)...

According to Markowitz, the purpose for holding a portfolio of assets is: (select all that apply)

A: elimination of unsystematic risk by selecting low-security correlations

B: to lower total portfolio risk by selecting assets with low correlation to other portfolio assets.

C: to achieve the efficient/dominant portfolio

D: elimination of unsystematic risk by selecting low market correlations

E: to lower total portfolio risk by selecting assets with low market correlation.

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Answer #1

Total risk = Systematic risk + Unsystematic risk

Systematic risk is the market risk, which is non-diversifiable, while the unsystematic risk is company specific risk which can be either eliminated or minimized by holding a portfolio of stocks which have low correlation among them.

So, the correct answer options are:

A: elimination of unsystematic risk by selecting low-security correlations

B: to lower total portfolio risk by selecting assets with low correlation to other portfolio assets.

C: to achieve the efficient/dominant portfolio

D: elimination of unsystematic risk by selecting low market correlations

Can you please upvote? Thank You :-)

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