Combining two negatively correlated assets to reduce risk is known as
A) diversification.
B) valuation.
C) liquidation.
D) risk aversion.

Question

Quizplus · Accepted Answer

Diversification is the process of combining different investments in a portfolio in order to reduce risk. By including assets that are negatively correlated, meaning they tend to move in opposite directions, the overall risk of the portfolio can be reduced. As one asset may decline in value, the other may increase, creating a balance that helps to protect against significant losses. Valuation is the process of determining the value of an asset or investment, while liquidation refers to selling off assets to generate cash. Risk aversion is the tendency to avoid risk and favor more conservative investments.

Combining Two Negatively Correlated Assets to Reduce Risk Is Known