​Contrast to individual stocks, stability of Portfolio Risk (β) dramatically increases with
A. High return portfolios (Rₚ > R_F)
B. Larger portfolios (nₚ > 50)
C. Longer investment duration (tₚ > 26 weeks)
D. Increased trading volume
E. High premium portfolios (Rₚ > R_M)
​Choose the correct answer from the options given below:

Correct option is B

Introduction:

Beta (β) measures how sensitive an investment is to market movements.

• Individual stock β is often unstable because it is affected by company-specific factors (management issues, strikes, lawsuits, etc.).

• Portfolio β becomes more stable because these individual risks cancel each other out.

Information Booster:

1. Larger Portfolios (nₚ > 50)
   When many stocks are combined, the unsystematic (company-specific) risk is diversified away. As a result, portfolio beta reflects mainly market risk, making it more stable.

2. Longer Time Period (tₚ > 26 weeks)
   Using data over a longer period smooths out short-term fluctuations. This leads to a more reliable and stable beta estimate.

3. Higher Trading Volume
   Frequently traded securities provide better price information, reducing measurement errors in beta estimation.

Additional Information:

• High return portfolios (Rₚ > R_F): Higher returns do not ensure beta stability.

• High premium portfolios (Rₚ > R_M): Excess returns over the market are unrelated to beta consistency.

  Portfolio beta becomes more stable than individual stock beta due to diversification, longer time horizons, and better trading activity, not because of higher returns.

  Correct Option: B, C and D