单选题 An investor holds a portfolio of two stocks, ABC Inc. , and XYZ Corp, and is considering adding the stock of New Company to her portfolio. For diversification purposes, the most important factor for her considers where making this decision is: A. new Company's expected return relative to the of ABC and XYZ. B. the average covariance of New Company's returns with the returns of ABC and XYZ. C. the total variance of New Company's returns relative to the variance of returns for ABC and XYZ.

【正确答案】 C

【答案解析】The average covariance of a stock's return with returns of all other stocks in a portfolio is the most important factor to consider when adding a new stock to a portfolio. Adding a stock whose returns are less than perfectly positively correlated with the returns of the other stocks in the portfolio will cause the total standard deviation of the portfolio to be lower than the weighted average of the components' standard deviations. This is the benefit of diversification.