Which of the following is the best definition of diversification?
A) The sale of stock in a wholly owned subsidiary via an IPO.
B) A targeted share repurchase method.
C) The sale of assets, operations, divisions, and/or segments of a business to a third party.
D) Investment in more than one asset; returns do not move proportionally in the same direction at the same time, thus reducing risk.
E) Rules and practices relating to how corporations are governed by management, directors, and shareholders.

Question

Quizplus · Accepted Answer

Diversification refers to the strategy of investing in a variety of assets to reduce risk. The idea is that by spreading investments across different assets, the negative performance of one investment can be offset by the positive performance of another, thus reducing the overall risk of the investment portfolio. This is because the returns on the assets do not move proportionally in the same direction at the same time.

Which of the Following Is the Best Definition of Diversification