Question

Which of the following statements is MOST correct concerning diversification and​ risk? A. Asset allocation is important for pension funds but not for individual investors. B. There is no diversification effect if two stocks in a portfolio are perfectly correlated. C. Diversification is mainly achieved by the selection of individual securities for each type of asset held in a portfolio. D. Stocks with negative return correlations in a portfolio lead to dramatic increase in risk.

Answer 1

C. Diversification is mainly achieved by the selection of individual securities for each type of asset held in a portfolio.

Explanation:

Diversification permits to have different assets in portfolio of different nature. In case of failure of any of the assets, the performance is shield.