To diversify, a person who already holds stocks that move in the opposite direction of the stock market as a whole should:
A) always buy more of the same stocks.
B) buy stocks that move in the same direction of the stock market as a whole.
C) buy stocks that have about the same expected returns as the stocks she already holds.
D) sell all her stocks immediately.

Question

Quizplus · Accepted Answer

To diversify, it is important to buy stocks that move in the same direction as the overall stock market, as this can help reduce the overall risk of the portfolio. Buying more of the same stocks (option A) would only increase the concentration risk. Buying stocks with about the same expected returns (option C) may not necessarily diversify the portfolio. Selling all stocks (option D) may result in missed opportunities for returns.

To Diversify, a Person Who Already Holds Stocks That Move