The Purpose of Diversification Is To

question 11

Multiple Choice

The purpose of diversification is to:

• A) increase a portfolio's expected return.
• B) reduce a portfolio's non-diversifiable risk.
• C) reduce a portfolio's systematic risk.
• D) reduce a portfolio's total risk.

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Definitions:

Durbin-Watson Statistic

A test statistic used to identify the presence of autocorrelation (correlation of adjacent residuals) in the residuals from a regression analysis.

First-Order Autocorrelation

A statistical measure of the relationship between a variable's current value and its immediate previous value.

Durbin-Watson Test

A statistical method designed to identify the existence of autocorrelation with a single lag in the residuals resulting from a regression study.

Positive Autocorrelation

A statistical property of a series indicating that values close together in time are positively correlated and tend to move in the same direction.