Which of the following statements is false regarding diversification?
A) Adding assets will always reduce risk.
B) Diversification works because some risks are not common to all assets.
C) Diversification benefits occur most when the assets have a low correlation.
D) The market is a completely diversified portfolio.
E) A diversified portfolio always has less risk than the highest risk asset assuming the correlation between the assets is less than one and the standard deviation of the assets is not the same.

Question

Quizplus · Accepted Answer

Adding assets does not always reduce risk, as adding highly correlated assets may not provide additional diversification benefits.

Which of the Following Statements Is False Regarding Diversification