Which of the following is true regarding random diversification?
A)Investment characteristics are considered important in random diversification
B)The benefits of random diversification eventually no longer continue as more securities are added
C)Random diversification,if done correctly,can eliminate all risk in a portfolio
D)Random diversification eventually removes all company specific risk from a portfolio

Question

Quizplus · Accepted Answer

The benefits of random diversification eventually no longer continue as more securities are added. While diversification can reduce overall portfolio risk, at some point adding additional securities will have a negligible impact on risk reduction. Furthermore, investment characteristics should be considered when diversifying, so choice A is false. It is impossible to eliminate all risk in a portfolio, so choice C is false. And finally, random diversification cannot eliminate all company-specific risk, so choice D is false.

Which of the Following Is True Regarding Random Diversification