Which of the following reduces risk in a portfolio the greatest?
A) Increasing the number of shares from 10 to 20
B) All of these answers provide the same amount of risk reduction.
C) Increasing the number of shares in the portfolio from 1 to 10
D) Increasing the number of shares from 20 to 30

Question

Quizplus · Accepted Answer

Increasing the number of shares in the portfolio from 1 to 10 will provide the greatest risk reduction as it diversifies the portfolio across multiple securities. Increasing the number of shares from 10 to 20 or 20 to 30 may still result in a concentrated portfolio and not provide as much risk reduction as diversifying across 10 securities. Option B is incorrect as not all options provide the same amount of risk reduction.

Which of the Following Reduces Risk in a Portfolio the Greatest