How can you reduce the level of risk, provided the constituents of a portfolio are not perfectly positively correlated?
A) Decrease the number of securities
B) Make the statistical interdependence between the securities more positive
C) Identify high profit investments
D) Increase the number of securities

Question

Quizplus · Accepted Answer

By increasing the number of securities in a portfolio, we can increase the diversification, which can reduce the overall risk of the portfolio. This is because diversification helps to reduce the impact of any individual security's performance on the overall performance of the portfolio. Therefore, D is the best choice to reduce the level of risk.

How Can You Reduce the Level of Risk, Provided the Constituents