As diversification increases, the standard deviation of a portfolio approaches

A) 0.
B) 1.
C) infinity.
D) the standard deviation of the market portfolio.
E) None of the options are correct.

Standard Deviation

A statistical measure that quantifies the amount of variation or dispersion of a set of data values, often used to measure the volatility of financial returns.

Diversification

An investment strategy that involves spreading investments among various financial instruments, industries, and other categories to reduce exposure to any one particular asset or risk.

Market Portfolio

A theoretical portfolio of investments that contains all available assets in the market, representing the entire market.