Asked by Ismael Colon on Jul 15, 2024
Verified
Diversification can reduce firm-specific risk.
Diversification
A risk management strategy that involves spreading investments across various financial assets, industries, or other categories to minimize exposure to any single risk or volatility.
Firm-specific Risk
Risk factors affecting only a specific company or industry, as opposed to broader market or economic risks.
- Gain an understanding of how diversification acts as a risk reduction strategy in investment portfolios.
Verified Answer
AE
Abner EspinozaJul 16, 2024
Final Answer :
True
Explanation :
Diversification reduces firm-specific risk by spreading investments across various financial instruments, industries, or other categories, thus minimizing the impact of any single investment's poor performance on the overall portfolio.
Learning Objectives
- Gain an understanding of how diversification acts as a risk reduction strategy in investment portfolios.