Diversification can reduce portfolio risk even in the case when correlations across stock returns equal zero.

Question

Quizplus · Accepted Answer

Diversification involves investing in multiple stocks across different industries or sectors, which can reduce portfolio risk through the concept of "not putting all your eggs in one basket." Even if the correlations across stock returns are zero (meaning they are not related to each other), diversification can still reduce the risk of the overall portfolio.

Diversification Can Reduce Portfolio Risk Even in the Case When