Asked by Genna Greco on Apr 26, 2024
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The principle of diversification tells us that:
A) Concentrating an investment in two or three large stocks will eliminate all of your risk.
B) Concentrating an investment in two large stocks will cut your risk exactly in half.
C) Spreading an investment across many diverse assets cannot (in an efficient market) eliminate any risk.
D) Spreading an investment across many diverse assets will eliminate all of the risk.
E) Spreading an investment across many diverse assets will eliminate some of the risk.
Principle of Diversification
A risk management strategy that mixes a wide variety of investments within a portfolio to minimize risks.
Efficient Market
A financial market theory stating prices fully reflect all available information, making it impossible to consistently achieve higher returns.
Concentrating Investment
Allocating a significant portion of an investment portfolio to a single investment or a small group of investments, increasing potential risk and return.
- Acquire knowledge on the essentials of diversification and its repercussions on portfolio risk.
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Learning Objectives
- Acquire knowledge on the essentials of diversification and its repercussions on portfolio risk.
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