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

Question

Quizplus · Accepted Answer

The primary purpose of portfolio diversification is to eliminate asset-specific risk by investing in a variety of assets that will not be affected similarly by external factors. This reduces the overall risk of the portfolio while still allowing for potential returns. However, diversification does not eliminate all risks, nor does it necessarily increase returns.

The Primary Purpose of Portfolio Diversification Is to