Which of the following is a feature of the 'Modern Portfolio Theory' developed by Markowitz?
A. Diversification never reduces risk
B. Risk is independent of portfolio composition
C. Investors can reduce risk by diversifying across assets whose returns are not perfectly correlated
D. Only the return of individual assets matters
Answer: Option C
Solution (By JKSSB Mock Tests)
Markowitz’s modern portfolio theory shows that the risk of a portfolio depends on the covariances among asset returns; diversification can therefore lower portfolio variance for a given expected return.
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