Diversification refers to the _____.
A) reduction of the stand-alone risk of an individual investment, measured by its beta coefficient, by combining it with other investments in a portfolio
B) reduction of the stand-alone risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio
C) reduction of the systematic risk of an individual investment, measured by its beta coefficient, by combining it with other investments in a portfolio
D) reduction of the systematic risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio
E) reduction of the unsystematic risk of an individual investment, measured by its coefficient of variation, by combining it with other investments in a portfolio

Question

Quizplus · Accepted Answer

Diversification refers to the reduction of the stand-alone risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio. This means that by holding a diversified portfolio, an investor can potentially reduce their overall risk and increase their chances of achieving their desired returns.

Diversification Refers to the _____