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(Solved): Portfolio theory as described by Markowitz [the combination of many risk securities with risk-free a ...


Portfolio theory as described by Markowitz [the combination of many risk securities with risk-free assets results in the steepest capital allocation line (CAL) and optimal risky portfolio] is most concerned with:

Question 2 options:

The elimination of systematic risk

The effect of diversification on portfolio risk

The identification of unsystematic risk

Active portfolio management to enhance return

All of the above



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The correct option is:

   The effect of diversification on portfolio risk.
Markowitz's portfolio theory is primarily concerned with the effect of diversification on portfolio risk.



The theory suggests that by combining multiple assets with different risk levels, an investor can achieve a more efficient portfolio with a higher expected return for a given level of risk, or a lower level of risk for a given expected return.

This is based on the principle that not all assets move in perfect correlation with each other, and by diversifying across different assets, the overall risk of the portfolio can be reduced.


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