Diversification refers to the _____.
A)reduction of the stand-alone risk of an individual investment, which is measured by its beta coefficient, by combining it with other investments in a portfolio
B)reduction of the stand-alone risk of an individual investment, which is measured by the standard deviation of its returns, by combining it with other investments in a portfolio
C)reduction of the systematic risk of an individual investment, which is measured by its beta coefficient, by combining it with other investments in a portfolio
D)reduction of the systematic risk of an individual investment, which is measured by the standard deviation of its returns, by combining it with other investments in a portfolio
E)reduction of the unsystematic risk of an individual investment, which is measured by its beta coefficient, by combining it with other investments in a portfolio

Question

Diversification refers to the _____. 
A)reduction of the stand-alone risk of an individual investment, which is measured by its beta coefficient, by combining it with other investments in a portfolio
B)reduction of the stand-alone risk of an individual investment, which is measured by the standard deviation of its returns, by combining it with other investments in a portfolio
C)reduction of the systematic risk of an individual investment, which is measured by its beta coefficient, by combining it with other investments in a portfolio
D)reduction of the systematic risk of an individual investment, which is measured by the standard deviation of its returns, by combining it with other investments in a portfolio
E)reduction of the unsystematic risk of an individual investment, which is measured by its beta coefficient, by combining it with other investments in a portfolio

Quizplus · Accepted Answer

Diversification refers to the reduction of the stand-alone risk of an individual investment, which is measured by the standard deviation of its returns, by combining it with other investments in a portfolio. This is achieved by selecting assets with different return characteristics, such as stocks, bonds, and real estate, which tend to respond differently to changing economic and market conditions. By diversifying across different asset classes, investors can reduce their exposure to specific sources of risk and potentially improve the overall risk-return profile of their portfolio.

Diversification Refers to the _____