Research indicates that an investor can cut random risk in half by diversifying in as few as five stocks and bonds.

Question

Quizplus · Accepted Answer

According to modern portfolio theory, diversifying in as few as 5 stocks can significantly reduce the idiosyncratic, or random risk associated with individual stocks. However, systematic risk or market risk cannot be diversified away, regardless of how many stocks or bonds are owned.

Research Indicates That an Investor Can Cut Random Risk in Half