A diversified portfolio, market risk, and use of beta coefficient are associated with what type of performance measure?
Explanation
Answer: A - A diversified portfolio, market risk, and use of beta coefficient is associated the Treynor index as a performance measure. The Treynor ratio provides a relative measure of the risk-adjusted performance of a portfolio based on the market risk, therefore use with diversified portfolios. The risk is measured by the beta coefficient. If the portfolio is fully diversified then both indices (Sharpe and Treynor) should yield the same results, because diversification will eliminate all unsystematic risk from the portfolio. Because this is a relative measure, the Treynor index must be used to compare alternative investments.
