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) I only
B) II only
C) Both I and II
D) Neither I nor II

Question

Quizplus · Accepted Answer

Statement I is correct, as diversification can reduce the overall portfolio risk by spreading investments across different asset classes and reducing the impact of any one asset's performance. However, statement II is not always true, as diversifying into new, unrelated products may not always be the best strategy, especially if those products are not properly understood or aligned with the investor's goals. Therefore, the best choice is A, which only includes the correct statement.

Which of the Following Statements About Diversification Is/are Correct