Which explanation below is most appropriate in explaining why diversification can reduce investment risk?
A)The greater the number of assets held,the greater the portfolio return.
B)The greater the risk taken,the greater the portfolio return.
C)Asset returns are often poorly correlated.
D)Asset returns tend to be stable over time.

Question

Quizplus · Accepted Answer

Diversification reduces investment risk because asset returns are often poorly correlated. This means that if one asset or sector of the market underperforms, the other assets in the portfolio may remain stable or even outperform, reducing the overall risk of the portfolio.

Which Explanation Below Is Most Appropriate in Explaining Why Diversification