Which of the following statements is most correct concerning diversification and

Question

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

a. Risk-averse investors often select portfolios that include only companies from the same industry group because the familiarity reduces the risk

b. risk-averse investors often choose companies from different companies for their portfolios because the correlation of returns is less than if al the companies came from the same industry

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

Explanation / Answer

the answer is b. investing in different industries that are negatively correlated decreases variation in the overall portfolio.

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