Which of the following statements is true about how the portfolio strategy can be used to help managers acquire companies that fit well with the rest of their corporate portfolio?
A) The fewer businesses in which a corporation competes, the smaller its overall chances of failing.
B) Risk can be reduced through related diversification (creating or acquiring companies in related businesses).
C) Invest the profits and cash from mature, slow-growth businesses into newer, faster growing businesses.
D) The most significant advantage of the portfolio strategy is the ability to categorize businesses as stars, exclamation points, question marks, and dogs.
E) All of these statements about how the portfolio strategy can be used to help managers acquire companies that fit well with the rest of their corporate portfolio are true.

Question

Quizplus · Accepted Answer

It is possible to reduce risk through diversification, particularly through moderate levels of related diversification. However, contrary to the predictions of portfolio strategy, research evidence does not support the usefulness of acquiring unrelated diversification. Categorization of businesses can prove dysfunctional because it relies on past performance and tends to weaken cash cows.

Which of the Following Statements Is True About How the Portfolio