The principle of diversification tells us that: concentrating an investment in t

Question

The principle of diversification tells us that: concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk. concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk. spreading an investment across five diverse companies will not lower the total risk, spreading an investment across many diverse assets will eliminate all of the systematic risk. spreading an investment across many diverse assets will eliminate some of the total risk.

Explanation / Answer

Main objective of diversification of portfolio is decreasing the risk from the portfolio. Entire risk cannot be eliminated, but can only be reduced by way of affective diversification among various assets.

Hence, correct option is (E)

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