Which of the following statements about diversification is/are correct?
I.Diversification may be able to reduce the risk of a portfolio to less than the weighted average risk of the assets.
II.Diversification is always prudent and should be expanded to include new, unrelated products whenever possible.
A)Only statement I is correct
B)Only statement II is correct
C)Both statements I and II are correct
D)Neither statement I nor II is correct

Question

Quizplus · Accepted Answer

Statement I is correct as diversification can reduce the overall risk of a portfolio by spreading investment across different assets. However, statement II is not always correct as diversification should be done based on the investor's overall investment goals and risk tolerance, not just for the sake of adding unrelated products.

Which of the Following Statements About Diversification Is/are Correct