The primary purpose of portfolio diversification is to:
A) increase returns and risks.
B) eliminate all risks.
C) eliminate asset-specific risk.
D) eliminate systematic risk.
E) lower both returns and risks.

Question

Quizplus · Accepted Answer

The primary purpose of portfolio diversification is to eliminate asset-specific risk. This is achieved by investing in multiple assets/classes with different characteristics so that the risk associated with any particular asset is mitigated by the performance of others. While this may not necessarily increase returns, it does help to lower overall portfolio risk.

The Primary Purpose of Portfolio Diversification Is To