medium · Quantitative Finance prob-stats
In portfolio theory, the 'systematic risk' (market risk) is measured by beta.
If an investor holds a portfolio of 1000 stocks with equal weights and no pairwise correlation, what happens to the portfolio's total variance?
- It becomes equal to the variance of the market index.
- It remains constant regardless of the number of stocks.
- It vanishes toward zero.
- It approaches the average variance of the individual stocks.
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