Which statement about portfolio diversification is correct
A)Proper diversification can eliminate systematic risk.
B)The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.
C)Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
D)Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.
E)None of the statements is correct.

Question

Quizplus · Accepted Answer

Diversification can eliminate only nonsystematic risk; relatively few securities are required to reduce this risk, thus diminishing returns result quickly.

Which Statement About Portfolio Diversification Is Correct