CAPM theory believes that portfolio returns can be best explained by: (A) diversification (B) systematic risk
B
divert is free, so not utilization diversification should not be rewarded
B
Diversification points. - 30 stocks and you should be max diversified - International provides even more benefit as business cycles are not perfectly correlated. - Any combination of stocks with correlation less than +1 will have some benefit; however, you cannot say that combining two assets with correlation less than 1 will reduce portfolio standard deviation unless you know the individual asset standard deviations.