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

B. Asset allocation is important for pension funds but not for individual investors.

C. Large company stocks and small company stocks together in a portfolio lead to dramatic reductions in risk because their returns are negatively correlated.

D. Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category.

Explanation / Answer

D. Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category.

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