The correct answer is: D. insight about the relative importance of variances and co variances in determining portfolio risk.
Markowitz’s main contribution to portfolio theory is his insight about the relative importance of variances and co variances in determining portfolio risk. He showed that by combining assets with low correlations, investors can create portfolios with lower risk than any of the individual assets in the portfolio. This insight has had a profound impact on the way investors manage their portfolios.
Option A is incorrect because risk is not the same for each type of financial asset. Some assets, such as stocks, are riskier than others, such as bonds.
Option B is incorrect because risk is not a function of credit, liquidity and market factors. Risk is a measure of the potential for loss. It can be caused by a variety of factors, including changes in market conditions, economic conditions, and company-specific events.
Option C is incorrect because risk is quantifiable. There are a number of different measures of risk, such as variance, standard deviation, and beta.
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