Diversification cannot reduce market risk.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single asset's performance on overall portfolio returns.

Market Risk

The risk of losses in investments due to factors that affect the overall performance of the financial markets.

Acknowledge the limitations of diversification in reducing certain types of financial risk.

Verified Answer

Kihei ClarkJul 25, 2024

Final Answer :

True

Explanation :

Diversification can reduce unsystematic risk (specific to individual investments), but it cannot eliminate systematic risk (market risk) which affects all investments.

Learning Objectives

Acknowledge the limitations of diversification in reducing certain types of financial risk.

Diversification cannot reduce market risk.

Definitions

Learning Objectives

Learning Objectives

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