Diversification reduces the risk of a portfolio because ________, and some of the risks are averaged out of the portfolio.
A) stocks do not move identically
B) stocks have common risks
C) stocks are fully predictable
D) stocks are not affected by the market

Question

Quizplus · Accepted Answer

Diversification reduces the risk of a portfolio because stocks do not move identically, meaning some will perform better while others may underperform. By having a diversified portfolio, the risks are averaged out, leading to a less volatile overall portfolio. It is not because stocks have common risks, are fully predictable, or are not affected by the market.

Diversification Reduces the Risk of a Portfolio Because ________, and Some