Diversification Stocks?
You own two stocks in your portfolio but want to add more. When you add a third stock, the total risk of your portfolio declines. When you add a tenth stock, the total risk declines. Adding which stock, the third or the tenth, likely reduced the total risk more? Explain.
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Answer by jeff410
Adding the third stock likely reduced risk more. The more stocks you add to a portfolio the more the risk is reduced but so is the expected return of the portfolio. Adding the tenth stock likely reduced the expected return more than it reduced the risk.
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