Diversification
A)increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher.
B)increases the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower.
C)reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is higher.
D)reduces the likely fluctuation in a portfolio's return.Thus,the likely standard deviation of the portfolio's return is lower.

Question

Quizplus · Accepted Answer

Diversification involves investing in a variety of assets that are not perfectly correlated with each other. This reduces the risk of loss from any individual asset or sector. As a result, diversification reduces the likely fluctuation in a portfolio's return, leading to a lower standard deviation of the portfolio's return. Therefore, option D is the correct choice.