For Diversification to Reduce Risk

question 1

Multiple Choice

For diversification to reduce risk,

• A)the returns on the individual securities should be highly correlated
• B)the prices of the stocks should be stable
• C)the returns on the individual securities should be negatively correlated
• D)one firm should offer dividends and the other should offer capital gains

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Definitions:

Causal Reasoning

The ability to identify and understand the relationship between cause and effect.

Piaget

A Swiss psychologist known for his pioneering work in the development of children's understanding of the world around them.

Causality

The relationship between cause and effect, where one event (the cause) is understood to directly result in another event (the effect).

Count

The action of determining the total number of items in a collection or group.