Question

An equity portfolio that contains multiple securities from a range of industries and has a beta of 1.5 most likely:

a) Has reduced systematic risk through diversification.
b) Will have an R-Squared that approaches 100%.
c) Contains very little if any unsystematic risk.
d) Has less volatility than the market portfolio.

Answer 1

An equity portfolio with a beta of 1.5 and multiple securities from different industries most likely has reduced systematic risk through diversification, while still having some unsystematic risk.

Step-by-step explanation:

An equity portfolio that contains multiple securities from a range of industries and has a beta of 1.5 most likely has reduced systematic risk through diversification.

By including securities from a range of industries, the portfolio reduces the impact of any one industry's performance on the overall portfolio. This reduces the systematic risk, which is the risk that affects the entire market and cannot be diversified away.

However, it's important to note that the portfolio will still have unsystematic risk, which is the risk that is specific to individual securities and can be diversified away through further diversification. The level of unsystematic risk will depend on the number and types of securities in the portfolio.