What effect will adding the new stock have on standard of the revised portfolio?

The portfolio manager adds new stock to a portfolio. The stock has the same standard deviation as the existing portfolio but a correlation of coefficient with the existing portfolio that is less than +1.

What effect will adding the new stock have on standard of the revised portfolio?
A . The standard deviation will increase
B . The standard deviation will decrease
C . The standard deviation will be unaffected
D . Impossible to say without more information

View Answer

Answer: B