A table shows the average annual return, standard deviation (risk), and correlation coefficient with the overall market (beta) for four investment portfolios (Growth, Value, Balanced, Income) over the last five years. An investor with a moderate risk tolerance, seeking to maximize returns while maintaining a diversification benefit (lower correlation with the overall market), would find which portfolio most suitable? | Portfolio | Avg. Annual Return (%) | Std. Deviation (%) | Beta | |-----------|------------------------|--------------------|------| | Growth | 12.0 | 18.0 | 1.2 | | Value | 10.5 | 15.0 | 0.9 | | Balanced | 9.0 | 10.0 | 0.7 | | Income | 6.0 | 5.0 | 0.5 |
✓ Correct Answer: Option B
Moderate risk tolerance suggests avoiding the highest risk (Growth, 18% Std Dev). To maximize returns among the remaining, Value (10.5%) is higher than Balanced (9%) and Income (6%). Value also offers diversification (Beta 0.9) better than Growth (Beta 1.2). Balanced has lower risk and beta but also lower returns.