What is the appropriate measure of risk for an asset held in a diversified portfolio?

What is the appropriate measure of risk for an asset held in a diversified portfolio?

Coefficient of variation
The correct answer is d) Coefficient of variation; beta.

How do you measure portfolio diversity?

The correlation coefficient is calculated by taking the covariance of the two assets divided by the product of the standard deviation of both assets. Correlation is essentially a statistical measure of diversification.

What does portfolio at risk measure?

Portfolio risk reflects the overall risk for a portfolio of investments. It is the combined risk of each individual investment within a portfolio. The different components of a portfolio and their weightings contribute to the extent to which the portfolio is exposed to various risks.

What is the measure of a risk of return on a security?

The standard deviation on the rate of return on an investment is a measure of its volatility, or risk.

What is the best measure of risk?

The five measures include the alpha, beta, R-squared, standard deviation, and Sharpe ratio. Risk measures can be used individually or together to perform a risk assessment. When comparing two potential investments, it is wise to compare like for like to determine which investment holds the most risk.

Which one of the following does measure risk?

Question: Which one of the following does measure risk? Coefficient of variation Standard deviation Expected value All of the above are measures of risk.

How do you determine if a portfolio is diversified?

To build a diversified portfolio, you should look for investments—stocks, bonds, cash, or others—whose returns haven’t historically moved in the same direction and to the same degree.

How is risk measured?

Risk is measured by the amount of volatility, that is, the difference between actual returns and average (expected) returns. This difference is referred to as the standard deviation. Thus, standard deviation can be used to define the expected range of investment returns.

How do you measure risk?

(i) Calculate the mean of expected value of the distribution. (ii) Calculate the deviation from each possible outcome. (iii) Square each deviation. (iv) Multiply the squared deviations by the probability of occurrence for its related outcome.

Why is it important to have a well diversified portfolio?

True: Because in a well diversified portfolio, the unsystematic risk of a stock is eliminated and only systematic risk is left. Nice work! You just studied 36 terms! Now up your study game with Learn mode.

What is the difference between total risk and portfolio risk?

Total risk is the risk borne by holding one security only. Portfolio risk, or systematic risk), is the risk one still bears after achieving full diversification (cov). Diversifiable, or unsystematic risk, is the risk that can be diversified away in a large portfolio (var-cov).

Which measure measures the total risk of a stock?

Standard deviation or variance measures the total risk of a stock. (1) Which is the best measure of risk for choosing an asset which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as part of a diversified portfolio? a. Variance; correlation coefficient. b. Standard deviation; correlation coefficient.

Do all investors have the same optimal risky portfolio?

Assume that expected returns and standard deviations for all securities (including the risk-free rate for borrowing and lending) are known. In this case all investors will have the same optimal risky portfolio. (True or false?)