Combining two less than perfectly positively correlated assets to reduce risk is known as ________.
A)diversification
B)valuation
C)securitization
D)risk aversion

Question

Quizplus · Accepted Answer

Diversification is the process of combining two or more assets that are positively correlated to reduce overall portfolio risk. This is achieved by investing in assets that have a low or negative correlation with each other, so that losses in one asset can be offset by gains in another. Valuation is the process of determining the fair value of an asset, securitization is the process of converting an illiquid asset into a tradable security, and risk aversion is the tendency to avoid risky investments.

Combining Two Less Than Perfectly Positively Correlated Assets to Reduce