The Principle of Diversification Tells Us That

question 59

Multiple Choice

The principle of diversification tells us that

• A)concentrating a portfolio in three companies within the same industry will greatly reduce the overall risk of a portfolio.
• B)concentrating a portfolio in two or three large stocks will eliminate all of a portfolio's risk.
• C)spreading an investment across many diverse assets will eliminate all of a portfolio's risk.
• D)spreading an investment across many diverse assets will lower a portfolio's level of risk.
• E)spreading an investment across five diverse companies will not lower a portfolio's level of risk.

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Definitions:

Treatments

A specific procedure or regimen administered to participants in a scientific study to assess its efficacy or impact.

Randomized Block Design

A statistical experimental design that groups subjects into blocks to account for variability among them and randomly assigns treatments within each block.

Sum of Squares

A measure used in statistics that quantifies the variation or dispersion of a set of data points.

Two-way ANOVA

A statistical test used to determine the effect of two nominal predictor variables on a continuous outcome, assessing interaction between the two factors.