Portfolio diversification ____ volatility while ____ return.
A)reduces; averaging out
B)increases; averaging out
C)reduces; increases
D)increases; reduces

Question

Quizplus · Accepted Answer

Portfolio diversification aims to reduce volatility by spreading investments across different assets or asset classes. This helps to minimize the impact of fluctuations in any one specific asset on the entire portfolio. However, diversification is not intended to maximize returns. While it may reduce volatility, it does not guarantee returns. Instead, it aims to provide a balance of risk and reward by limiting exposure to any one specific asset or asset class. Overall, the goal of diversification is to achieve stable, consistent returns over time rather than aiming for high returns in the short term.

Portfolio Diversification ____ Volatility While ____ Return

Portfolio Diversification Volatility While Return