Which of the following combinations of stocks would give you the biggest reduction in risk?

Question

Quizplus · Accepted Answer

Diversification of investments is key in reducing risk. By combining stocks from two different industries, there is a lower chance of both stocks being affected by the same market forces. Choosing stocks with low correlation to each other is also important in reducing risk. Option C offers a combination of a technology company (Microsoft) and a utility company (Duke Energy), providing diversification and potentially reducing risk. Options A and B both include Wal-Mart, which is in the same industry as many other retail companies and may not provide significant diversification. Options D and E both only include one stock, offering no diversification.

Which of the Following Combinations of Stocks Would Give You