Approximately how many securities does it take to diversify almost all of the unique risk from a portfolio?
A) 2
B) 6
C) 8
D) 20

Question

Quizplus · Accepted Answer

According to modern portfolio theory, diversification can significantly reduce unique risk in a portfolio. However, the degree of risk reduction depends on the number of securities included in the portfolio. Generally, a portfolio of 20-30 securities is considered well-diversified and can eliminate almost all of the unique risk from the portfolio. Therefore, the best choice is D, as it provides a diversified portfolio with a reasonable number of holdings. Choices A, B, and C are not sufficient to diversify almost all of the unique risk from a portfolio.

Approximately How Many Securities Does It Take to Diversify Almost