Setting a maximum return volatility of 15% on a portfolio is an example of:
- portfolio objective.
- portfolio diversification.
- asset allocation.
- security selection.
answer C. Setting a cap on return volatility is an example of a constraint within asset allocation. Security selection deals with choosing specific investments for the portfolio. Objectives deal with maximizing value or meeting returns targets. Diversification is a concept of diminishing risk from adding securities to a portfolio with low correlation with existing portfolio assets.
I have always thought that return and risk is part of portfolio objective and not constraint. Is this question wrong?