Which of the following statements about diversification is most accurate?The purpose of diversification is to:
A)increase a portfolio's expected return.
B)reduce a portfolio's non-diversifiable risk.
C)reduce a portfolio's systematic risk.
D)reduce a portfolio's total risk.

Question

Quizplus · Accepted Answer

Diversification aims to reduce a portfolio's total risk by spreading investments across different asset classes, industries, and regions. This can help mitigate the impact of any single investment's poor performance on the overall portfolio. While diversification can also impact a portfolio's expected return and systematic risk, these are secondary objectives compared to reducing total risk. Non-diversifiable risk, also known as market or systematic risk, cannot be eliminated through diversification but can be reduced to some extent.

Which of the Following Statements About Diversification Is Most Accurate?The