Which of the Following Statements Is MOST Correct Concerning Diversification

question 129

Multiple Choice

Which of the following statements is MOST correct concerning diversification and risk?

• A) Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry.
• B) Risk-averse investors often select portfolios that include only companies from the same industry group because the familiarity reduces the risk.
• C) Only wealthy investors can diversify their portfolios because a portfolio must contain at least 50 stocks to gain the benefits of diversification.
• D) Proper diversification generally results in the elimination of risk.

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Definitions:

Wider

Having a greater width; more broad.

Organic Matter

Material derived from living organisms, including plants, animals, and their by-products, decomposing in the environment.

Weathered Rock

Rock that has undergone physical or chemical breakdown due to atmospheric or biological elements, leading to changes in texture, composition, or color.

O Horizon

The O Horizon is the uppermost layer of soil, primarily composed of organic matter such as decomposing leaves and other plant material, crucial for nutrient cycling and soil fertility.