Two risky assets can be combined to lower the overall risk of a portfolio.This principle is commonly referred to as
A)blending
B)asset allocation
C)diversification
D)portfolio segmentation
E)none of the above

Question

Quizplus · Accepted Answer

The principle described in the question is widely known as diversification. By selecting two assets with different risk characteristics, the overall risk of the portfolio can be reduced. For example, if one asset has a higher risk and another has a lower risk, combining them would result in a portfolio with a risk level somewhere in between. Therefore, option C is the best choice as it correctly identifies this principle.

Two Risky Assets Can Be Combined to Lower the Overall