Asked by Kassy Lazcano on Jul 22, 2024
Verified
Diversification cannot reduce market risk.
Diversification
A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single asset's performance on overall portfolio returns.
Market Risk
The risk of losses in investments due to factors that affect the overall performance of the financial markets.
- Acknowledge the limitations of diversification in reducing certain types of financial risk.
Verified Answer
KC
Kihei ClarkJul 25, 2024
Final Answer :
True
Explanation :
Diversification can reduce unsystematic risk (specific to individual investments), but it cannot eliminate systematic risk (market risk) which affects all investments.
Learning Objectives
- Acknowledge the limitations of diversification in reducing certain types of financial risk.
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