bkballa

This question looks to mesh both Quant and PM; If you think about how the risk of a portfolio of assets differs from the risk of a single asset you’ll see the answer.
Cov(asset1,asset1) = Var(asset) = (B of asset^2)(std dev of market^2) + Std dev of error^2
Cov(asset1,asset2) = (B of asset1 * B of asset 2)(std dev of market^2)
As you increase the number of assets in your portfolio the std dev of error (nonsystematic risk) decreases and your returns become more reliable increasing the power of your test.