Question

Which statement about portfolio diversification is correct?

A. Proper diversification can reduce or eliminate systematic risk.

B. Diversification reduces the portfolio?s expected return because it reduces a portfolio's total risk.

C. As more securities are added to a portfolio, total risk typically would be expected to fall at a decreasing rate.

D. The risk-reducing benefits of diversification do not occur meaningfully until at least 30 individual securities are included in the portfolio.

Answer 1

C. As more securities are added to a portfolio, total risk typically would be expected to fall at a decreasing rate.

Step-by-step explanation:

Portfolio diversification gives more security to a portfolio, which expected to results in a decreasing rate of total risk.

The portfolio which is diversified carries the co-variance measure of risk. It has the property of reducing the risk as it diversifies the portfolio to a great extent.

It reduces the overall risk by diversifying the assets i.e. stock , bonds, commodities etc.

Hence, the most appropriate answer is option C.