Hedging risk and spreading risk are two ways to:
A) increase expected returns from a portfolio.
B) diversify a portfolio.
C) lower transaction costs.
D) match up perfectly positively correlated assets.

Question

Quizplus · Accepted Answer

Hedging risk and spreading risk both involve diversifying a portfolio, which can help to reduce overall risk without sacrificing returns. Increasing expected returns (option A) is not necessarily the primary goal of these strategies, and lowering transaction costs (option C) is not necessarily relevant. Matching up perfectly correlated assets (option D) would not necessarily reduce risk or increase diversification.

Hedging Risk and Spreading Risk Are Two Ways To