Which of the Following Statements Is Most Correct Concerning Diversification

question 73

Multiple Choice

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

• A) Diversification is mainly achieved by the selection of individual securities for each type of asset held in a portfolio.
• B) Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category.
• C) Large company stocks and small company stocks together in a portfolio lead to dramatic reductions in risk because their returns are negatively correlated.
• D) Asset allocation is important for pension funds but not for individual investors.

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