Have a question on this. When the explanation mentions "decreases at a decreasing rate." Why is that? The chart on adding stocks to a portfolio makes it seem like the curve is decreasing at an increasing rate. Can someone explain this?
As the number of stocks in a portfolio increases, the portfolio's systematic risk:
A) can increase or decrease.
B) decreases at a decreasing rate.
C) decreases at an increasing rate
When you increase the number of stocks in a portfolio, unsystematic risk will decrease at a decreasing rate. However, the portfolio's systematic risk can be increased by adding higher-beta stocks or decreased by adding lower-beta stocks. (LOS 53.c)