Question

Which of the following statements about portfolio diversifications are correct?A. Portfolios that include stocks of only big companies minimize risk.B. Diversification can reduce risk but not eliminate it.C. Returns on stocks in the same industry are more closely correlated than on stocks in different industries.D. Correlation between returns on stocks of small companies is smaller than returns on stocks of big companies.

Answer 1

Answer:B. Diversification can reduce risk but not eliminate it.

C. Returns on stocks in the same industry are more closely correlated than on stocks in different industries.

Step-by-step explanation: Portfolio is a combination of financial assets,like commodities,real estate,stocks,bonds,cash, currencies,Arts,private investments etc owned by a business entity or an individual.

Portfolio diversification as explained by the theory of Markowitz Harry an Economist he STATED THAT IF THE RETURNS ON AN INVESTMENT IS CONSTANT, INVESTORS WILL DIVERSIFY INTO LOW RISK INVESTMENTS. THE RETURNS ON INVESTMENT EXPECTED FROM FIRMS WITH SIMILAR PRODUCT WILL LIKELY BE THE SAME.