Asked by Jordan Jeyachandran on Jul 05, 2024
Verified
The primary purpose of portfolio diversification is to:
A) Increase returns and risks.
B) Eliminate all risks.
C) Eliminate asset-specific risk.
D) Eliminate systematic risk.
E) Lower both returns and risks.
Asset-specific Risk
The risk associated with an investment in a specific asset, which can result from factors unique to that asset, independent of the market.
Portfolio Diversification
Portfolio diversification is an investment strategy that aims to reduce risk by allocating investments among various financial instruments, industries, and other categories.
- Gain an insight into the concepts of diversification and its influence on mitigating portfolio risk.
Verified Answer
HM
Hannah McGaunnJul 07, 2024
Final Answer :
C
Explanation :
Portfolio diversification aims to eliminate asset-specific risk (also known as unsystematic risk) by investing in a variety of assets, thereby reducing the impact of any single asset's performance on the overall portfolio.
Learning Objectives
- Gain an insight into the concepts of diversification and its influence on mitigating portfolio risk.
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