Trent wants to form a portfolio of four different stocks. Summary data on the four stocks appears below. The average standard deviation (found simply by summing the standard deviations and dividing by 4 which is the same as the weighted average in this example) across the four stocks is 17.25%. If Trent forms a portfolio by investing 25% of his money in each of the stocks in the table, it is very likely that the standard deviation of this portfolio’s return will be (more than, less than, equal to) 17.25%. Choose one of the options (more than, less than, equal to) and explain WHY? (Again, you are not asked to calculate portfolio standard deviation or correlation.)
Stocks# 1, 2, 3, 4
Return (%) 12, -4, 7, 3
Standard Deviation (%) 17, 29, 13, 10