Which of the following statements about diversification is correct??
A. ?Portfolio diversification reduces the variability of returns on an individual stock.
B. ?When the company specific risk has been diversified, the inherent risk that remains is the market risk, which is constant for all securities in the market.
C. ?A stock with a beta of ?1.0 has maximum nondiversifiable risk.
D. ?When two perfectly positively correlated stocks with the same risk are combined, the portfolio risk is equal to the risk associated with the individual stocks.
E. ?The systematic risk of a stock with a beta of zero is equal to the market risk.
Answer: D
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