A major flaw of simulation analysis is that it fails to consider the possibility that risk may be removed through diversification.

Question

Quizplus · Accepted Answer

Simulation analysis focuses on estimating the potential risks and returns of a single investment or portfolio. It does not take into account the potential benefits of diversification, which can help to reduce risk by spreading investments across different assets or asset classes. Therefore, it is a major flaw of simulation analysis that it does not consider the possibility of risk removal through diversification.

A Major Flaw of Simulation Analysis Is That It Fails