The main reason for diversification for an investor is to:
A) take advantage of the fact that returns of assets are perfectly positively correlated.
B) take advantage of the fact that returns on assets are not perfectly correlated.
C) lower transaction costs.
D) gain from the greater returns that come from greater risk.

Question

Quizplus · Accepted Answer

Diversification allows investors to reduce risk by investing in a variety of assets that are not perfectly correlated. This means that if one asset performs poorly, there is a chance that another asset in the portfolio will perform well, resulting in a more stable overall return. Therefore, choice B is the best answer. Choices A, C, and D are incorrect because they do not accurately describe the benefits of diversification.

The Main Reason for Diversification for an Investor Is To